The property market in Australia is always a hot topic.
The impact of a booming or sinking property market is always felt across the economy, industry and visa versa. With interest rates on hold, property prices falling and lending tightening, what are we seeing right now and what does the next 6-12 months look like for property in Australia?
Tim Gavan, Director, Head of Real Estate Advisory Services NSW for KPMG Australia, shared his thoughts at our recent property event.
Economic state of play
- Interest rates remain low at 1% and it is predicted that the RBA will cut interest rates by a further 25 basis points in November.
- Retail figures remain sluggish.
- Recently released GDP figures indicated 1.4% growth, with KPMG forecasting a further 1.9% growth over the 2019 calendar year.
Property market trends by sector and capital cities
So, what does this all mean for the property market and where do our biggest capital cities sit on the property cycle across office, industrial, residential and retail sectors?
Office
- In Sydney, demand for property is high, but supply is low. Vacancies are at a 10-year low of 4.1%.
- Melbourne has been the best performing market by far of all the states. The June ’19 quarter saw the largest property transaction in Australian history with Dexus acquiring 80 Collins Street for $1.476 billion from QIC.
- Brisbane’s market is on the way back after a slowdown, with office absorption and investment volumes continuing to grow.
- Perth is experiencing green shoots of opportunity off the back of high jobs growth.
- Adelaide’s market is experiencing lower vacancy rates and higher demand. One possible reason for this is the Adelaide government’s recent measure to abolish stamp duty for commercial properties to stimulate growth.
Industrial
- Sydney – a significant investment in transport infrastructure is fuelling the Sydney industrial market. The areas surrounding the new proposed Western Sydney Airport are set to become a greater focus for institutions and developers in the months and years to come.
- In Melbourne, rental growth has slowed, and for the first time in a while, new building supply is projected to fall over the next two years off the back of a shortage in land supply.
- Brisbane’s industrial property vacancies have declined, off the back of improving economic conditions and infrastructure projects.
- In Perth, the industrial market has shown good rental growth (+6%) and recent announcements regarding resource sector projects and Government spending will provide a welcome boost.
Retail
- In Sydney, there is still demand for retail property, despite the slowdown in retail trade growth from 4% to 2.1%. Interestingly, spending on household goods has dropped, in direct response to a slowing housing market.
- Melbourne has seen investment volumes decline, with fewer assets being brought to the market.
- Brisbane – Despite signs of improved economic conditions, retail spending in Queensland remains patchy.
- In Perth, retail sales growth remains negative, however there are green shoots emerging, with the labor market showing signs of improvement.
- Adelaide, Canberra and Hobart are all experiencing retail trade growth, whilst Darwin continues to underperform, which is reflective of wider local economic conditions.
Residential
- Across the board, lower interest rates will continue to do well to improve sentiment.
- Property prices are down across all states over the year, but have shown increases across the last month.
- The political and financial headwinds of the last 6-12 months (the Federal Election and the Banking Royal Commission) have lessened, and banks will find a way to lend again.
- Off the back of this, consumer sentiment is slowly beginning to change. People now have more of an understanding of the property market and are better informed as to where they stand, their financial position and what they realistically can and can’t borrow from the banks.
- Across the board, construction quality sentiment will continue to impact unit development. In the past year, the industry has been subject to major negative press concerning building standards and safety, especially in light of the Opal Tower and Mascot Tower issues.
In terms of what we can expect going forward, Tim believes that value follows infrastructure, and that there are, and will continue to be, pockets of opportunity, you just need to know where to look and start doing your research. The Australian Government’s recently released Australian Infrastructure Audit, provides a good overview of the challenges and opportunities facing Australia’s infrastructure over the next 15 years and beyond.