Australia and New Zealand were \u201cunderperformers\u201d in Asia Pacific\u2019s real estate market last year, with Sydney\u2019s commercial transaction volumes down by 52%, Melbourne\u2019s by 35% and Auckland\u2019s remaining stagnant.<\/p>\n\n\n\n
But the countries\u2019 overperformance in their handling of the pandemic could set them up for future success. Last week Yardi called in the experts to find out more.<\/p>\n\n\n\n
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David Green-Morgan<\/strong>, Managing Director of Real Capital Analytics in Asia Pacific, Dr Sarah Hunter<\/strong>, BIS Oxford Economics\u2019 Chief Economist for Australia and New Zealand, and Yardi\u2019s Regional Director, Bernie Devine,<\/strong> joined us for the latest instalment in Yardi\u2019s Executive Briefing Series for 2021. And their insights might surprise you.<\/p>\n\n\n\n
The pandemic hasn\u2019t been a financial disaster<\/strong><\/li><\/ol>\n\n\n\n
While the world has witnessed the biggest economic downturn on record, the Australia and New Zealand experience was far from the \u201cdouble digit\u201d declines felt in some markets, Hunter said. This was thanks to \u201cgood luck and good policy\u201d. Geographic isolation played its part, but both governments were also \u201caggressive leaders\u201d in lockdown stringency, tracking, tracing, testing and other public health responses. Controlling the pandemic has allowed both countries \u201cto normalise economic performance,\u201d Hunter noted.<\/p>\n\n\n\n
Central banks have thrown the \u201ckitchen sink\u201d at the pandemic, with quantitative easing and a lower cash rate making it easier for people to borrow. Emergency support measures \u201chave more than compensated\u201d for loss of income from wage freezes, lower dividends or job cuts. On an \u201caggregate level\u201d the pandemic \u201chas not been a financial disaster,\u201d Hunter observed. A \u201cwave\u201d of investment in infrastructure projects bodes well for the property industry, she added.<\/p>\n\n\n\n
Investment volumes took us back to 2016<\/strong><\/li><\/ul>\n\n\n\n
Australia and New Zealand were \u201cslight underperformers\u201d in 2020, Green-Morgan said. Asia Pacific investment volumes, while down on the \u201crecord year\u201d of 2019, were far from the falls witnessed during the Global Financial Crisis. Instead, transaction volumes were \u201cback in line with 2015 or 2016 territory, which was not a terrible outcome,\u201d Green-Morgan commented.<\/p>\n\n\n\n
Australia has since bounced back with $3.3 billion in transaction volumes for the first quarter \u2013 12% more than the same period for 2020. Australian cities have \u201cheld their ground\u201d, as has Auckland, Green-Morgan added.<\/p>\n\n\n\n
There is no end in sight for industrial expansion<\/strong><\/li><\/ul>\n\n\n\n
Logistics and office pricing are close to converging \u2013 something that surprised Green-Morgan. Yield compression in the industrial sector has been \u201castronomical\u201d in some markets since Covid. Sydney is the \u201cmost significant \u201d example in Australia, but it is occurring across both countries \u2013 and indeed the world. Without the pandemic it would \u201calmost certainly\u201d have taken longer for this convergence to occur, he said.<\/p>\n\n\n\n
Green-Morgan pointed to Blackstone\u2019s sale of its logistics portfolio to GIC and ESR for approximately AUD$3.8 billion in mid-April. \u201cMore than $40 billion of money was probably chasing that deal\u2026 and with a yield of around four-and-a-half per cent, , it\u2019s a record for logistics assets in Australia.\u201d<\/p>\n\n\n\n
Could industrial compress further than office, Devine asked? \u201cYes,\u201d was Green-Morgan\u2019s response. This year could be the \u201cdefining moment\u201d for both sectors and \u201cwe may have a continued period where logistics start to trade at lower yields than office assets\u201d.<\/p>\n\n\n\n
But the office is far from dead<\/strong><\/li><\/ul>\n\n\n\n
Hunter said BIS Oxford Economics is \u201ccautiously optimistic\u201d about the future of the office. Covid has \u201caccelerated trends that were already taking place\u201d, such as online shopping and work-from-home, but \u201cwe don\u2019t think the office is dead\u201d.<\/p>\n\n\n\n
Office occupancy remains quite low in Australian cities, when compared with other markets in the region, Green-Morgan remarked, and this differential could play into future pricing. But many of Australia\u2019s largest transactions in 2020 were for office assets.<\/p>\n\n\n\n
Retail investors will return when the price is right<\/strong><\/li><\/ul>\n\n\n\n
Cross-border investors are starting to dispose of their retail assets to domestic groups. GIC has put three \u201cvery high-quality CBD retail assets\u201d onto the market in Sydney, said Green-Morgan, adding that the market will watch this sale with interest. Not one of the top 10 investors into Australia in 2020 purchased a retail asset but investors will always return \u201cwhen the price is right\u201d.<\/p>\n\n\n\n
Wrapping up the webinar, Devine noted that Australia and New Zealand have \u201creaped the benefits\u201d of hard lockdowns, with a \u201cresounding and resilient recovery\u201d taking both nations back to pre-pandemic levels. This was in stark contrast to the \u201cvery different story\u201d unfolding in other Asia Pacific markets. \u201cThe pain of 2020 worth the gain when you look at the alternatives.\u201d<\/p>\n\n\n\n
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