As housing market softens and global growth outlook seems to decline, Australia’s GDP continues to soar

Dexus released their quarterly review and  recent data points to moderating growth for the Australian economy driven by a softening housing market and a downward revision to the global growth outlook. However, Australia’s GDP will be higher than most other developed nations in the OECD.

The concurrently tightening cap rates which led to average total returns across sectors has ended as Sydney regional retail yields expanded for the first time since 2009. Over the past year a tightening of industrial cap rates relative to office has reduced the yield advantage held by industrial to the lowest level on record.

Performance in the direct property market remains robust with strong investor demand, especially for Sydney, Melbourne office and industrial assets. We expect returns to trend lower in the year ahead as capital growth wanes and returns revert toward income.

Demand is running slightly ahead of supply. Land value rises have been further exacerbated by strong investment demand. Investment demand has put downward pressure on yields, narrowing industrial’s historical yield spread over office. Nevertheless, deman, rents and land values remain strong.

The outlook for the retail sector remains challenged due to the slowing housing market, weak wages growth and high levels of household debt. However, the sector is getting positive support from solid employment growth.

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