A property manager has warned SMSFs and other investors of the need to be wary about investing in retail property as landlords with bricks and mortar shops face stiff competition from online shopping and e-commerce businesses.
“Concerns are continuing to mount for the retail sector as changing consumer behaviours, low wage growth, mounting debt levels and falling house prices weigh on investors’ minds,” Thinktank head of research Per Amundsen said in the firm’s “Monthly Market Focus” for March.
“While capital growth for all retail assets remains marginally positive, it has slipped into negative territory for regional, sub-regional and neighbourhood assets.”
The latest MSCI All Property Index demonstrates the need for SMSFs and investors to be alert to the whims of the different commercial property sectors, but the consistent income returns across this asset class are still reassuring in a volatile investment climate, according to Thinktank.
The manager pointed out even property sectors that recorded steep downturns in their overall performance, such as retail, healthcare and hotel, have still delivered consistent income returns over the past two years.
“By contrast, capital growth proved to be volatile in 2018, with a strong performance by industrial and steady performance by office failing to offset the decline in retail, hotel and healthcare,” Amundsen said.
All commercial property market sectors have delivered consistent income returns of around 5.5 per cent over the past two calendar years, he said.
He noted the rate of total return has fallen below 11 per cent for the first time in 15 quarters for the MSCI index to 10.3 per cent compared with 11.9 per cent a year earlier, and below the five-year average of 11.7 per cent.
But the index highlights the fluctuations are in capital growth rather than income, he said.
Thinktank remains confident industrial property, which recorded the strongest total returns across the sector of 14.8 per cent in 2018, can continue its positive performance.
“The evidence suggests that the Sydney and Melbourne industrial markets remain buoyant, with yields compressing in the prime and secondary markets in both cities due to strong demand and limited opportunities, while the Perth market is improving,” Amundsen said.
In the office property market, Sydney vacancies have fallen to 4.1 per cent, while in Melbourne they have hit a further 10-year low at 3.2 per cent. While total returns for Sydney and Melbourne are at 15.5 per cent and 13.4 per cent respectively, all the capitals show an income return from 5 per cent to 7 per cent.