Recently released market study: Australia Real Estate Report Q3 2013

The Australia Real Estate report examines the commercial office, retail, industrial and construction segments in the context of a sector with muted growth prospects in the medium term. With a focus on the principal cities of Melbourne, Sydney, Brisbane and Perth, the report covers the rental market performance in terms of rates and yields over the past 24 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the country's resources boom.

Australian commercial real estate continues to be fairly balanced because, structurally, the industry functions in a way that restricts overdevelopment. It operates in an economy that, despite weak consumer sentiment and structural changes, is performing reasonably well. The economy and sector are underpinned by resources and demand from China, a present but declining threat of interest rate rises, low unemployment and a strong infrastructure sector. We caution, however, that our short-term outlook for the economy is bearish, and the country will be negatively affected by the slowdown in Chinese economic growth.

Full Report Details at
- http://www.fastmr.com/prod/617005_australia_real_estate_report_q3_2013.aspx?afid=301

Having consulted our in-country sources in December 2012, with our most recently collected data covering full-year performance, we can confirm that rents in some regions experienced strong growth. However, it seems our view for a slowdown in Australia's economic growth has already started to play out and affect the sector, although the office market seems to be resisting this trend for the time being.

Key Points

* In spite of macroeconomic pressures weighing on the sector over the past 24 months, the office market has aligned itself with a gentle growth trajectory across all the cities according to our newly collected data covering H212, with rates in Sydney in particular benefitting.
* Despite a pick-up in metal prices and improving global economy, we maintain our view the improvements in the mining sector will be insufficient fuel for economic growth in 2013. Related investment in this industry continues to be weighed down by high costs. Moreover, we believe that the recovery in the Chinese economy is not permanent, given that much of the structural imbalances remain at hand.
* We believe that the housing market remains precarious, as affordability of home continue to edge to new lows. Given our poor outlook for the Australian job market in 2013, in which we forecast unemployment to reach 6.0% by the end of the year, we believe that demand for housing will decline. The overextended household balance sheets further augur the growth in housing-related credit growth. In our opinion, the Australian banking sector is the sector most leveraged on the housing market and we expect that declines in house prices will adversely impact the industry.

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