A shining sector: but not all industrial assets will perform equally. Photo: Supplied

Not all industrial property will prove equal in the downturn

Michael Bleby|May 07, 2020

Australian asset values are expected to drop 4.5 per cent in the next 12 months as the economy battles the slowdown triggered by the COVID-19 pandemic, industry body RICS warns in its latest quarterly survey of Australia’s commercial property market.

Australasia will still perform better over the next year than commercial property markets in other Asia-Pacific regions, with the decline still less than the 6.6 per cent aggregate fall of East Asia and the 5.7 per cent predicted decline of Southeast Asia, the UK-based RICS says in its Q1 2020 Australia Commercial Property Monitor.

Only India-dominated South Asia will escape more lightly, with an overall 0.2 per cent decline, according to the report based on survey responses of RICS members in each region.

Expectations for capital growth of assets have sunk across all sectors from three months ago, when the all-property consensus forecast for Australian property assets was for a 1.4 per cent gain.

The outlook for prime office assets has weakened from a 3.4 per cent increase to a 1.6 per cent decline over the 12-month horizon. Prime industrial assets have changed gear from an expected 3.6 per cent increase to 1.5 per cent decline.

But the headline numbers mask underlying details that reveal how individual markets and niches will perform. Although industrial property offered better returns overall than office assets in the pandemic-weakened economy, there was more room for investment in industrial assets to go wrong, RICS Australasia senior economist Sean Ellison said.

“The office segment is generally expected to underperform industrial. But the variation in outlook for office is much narrow than that for industrial,” Mr Ellison said.

“In some areas industrial is expected to outperform office by some margin but in others, the reverse is true. There’s a lot more risk to the outlook for industrial, especially when you look at the secondary properties as well as primary and take a broader regional perspective.”

Capital values for prime industrial properties are expected to be little changed over the next year in Brisbane, and are expected to contract less than 1 per cent in Perth and Melbourne.