Commercial Property Core Sector Performance | Chifley Securities

Previous topics have considered commercial properties as a whole, however to get a better understanding of the market, it’s important to break it down to its core assets. The market has seen differences in performance between the different core sectors as in retail, office, and industrial property.

Ever since the global financial crisis struck the average of total returns have stayed close to 9% – 10% with minimal variances between the core sectors. The property returns by sector (annualised returns) as of September 2013 are as follows:

  • Retail: 8.7%
  • Office: 9.2%
  • Industrial: 9.9%

Returns on retail we’re the lowest of all and this was due to a few factors. Returns have been slowed down by a slow growth in retail sales, which in turn is driven by a weak labor market and then finally a weak consumer confidence in spending.

Since consumer buying was down it created a domino effect and translated into lower rental growth which ultimately reduced retail returns. The global economy as a whole has seen a noticeable slowdown and this in turn created a low white collar employment growth which means the demand for office space has fallen.

With the occurrence of the GFC, supply growth has also weakened which has helped to sustain rental growth and returns. Looking at the capital market side of things the difference between the sectors has been the available spread to the 10 year bond rate, it has shown to have been the lowest for retail and highest for industrial properties.

Taking an overall look at the markets we are unlikely to see a big difference from the current trends. On the space market side demand will remain weak due to the forecasted outlook of the GDP trend. Finally, on the supply growth side things are expected to remain steady which should help with growth and slow retails sales growth.