This quarterly report has been developed in response to the growing demand for regular analysis and insight into how economic activity impacts real estate.
Real estate, along with almost every industry in Australia, faces a challenging economic climate due to significant geopolitical conditions, including:
- increasing inflation and interest rates
- heightened risks
- supply chain challenges
- the collapse of construction companies.
This series of reports provides insights from our Real Estate and Economics experts, in conjunction with Real Investment Analytics (RIA), on the current economic environment and each of the real asset classes. It also addresses the eternal question of whether real estate is an inflation hedge.
Key real estate trends for the market as at end of May 2023
Solid economic growth and the tight labour market are driving occupational pressure across each key property sector. The outlook for a cooling economy will weigh on lease activity and the demand for space.
Softer demand for space continues, as a large part of CBD workforces remain working from home and employment growth slows. A reversal in asset pricing dynamics is likely to see capitalisation rates soften further for low quality grade assets.
Occupancy rates have been supported by the recent strength in retail demand. Investment return performance continues to be strongest for convenience and large format retail while softer for prime shopping centres.
Demand is out-pacing available space in this sector. This is underpinned by e-commerce and disruptions to retail sales and delivery platforms. This is translating into higher rentals.
Short term economic outlook impacting property market
- Economic growth to slow in the coming quarters.
- The labour market will remain tight but show some softening: employment growth will slow and unemployment is expected to edge upwards.
- Consumer demand will moderate with curbs to discretionary spending.
- Housing market activity to slow and house prices decline.
- CPI inflation to remain elevated against higher market interest rates.