Australia’s property market: punching above its weightMarch 30, 2012 / By
I was down in my old stomping ground of Sydney last week and the city was at its spectacular best with glorious autumn days. The economic skies were mostly sunny, but with a few scattered clouds.
Australia was one of the few mature economies that managed to avoid a recession during the Global Financial Crisis. Strong commodity exports, particularly to China, helped shield Australia from a major downturn in the broader economy. Three years on and the resources sector is still buoyant, while other parts of the economy are slower. Banks are shedding jobs and, like their counterparts elsewhere, are offshoring some of these jobs to cheaper destinations such as India. Consumer spending is relatively subdued right now as households focus on reducing their debt levels. The high Aussie dollar – which has been above parity with the US dollar for most of the last year – is also causing some pain for the country’s manufacturing exporters.
Despite the more cautious economic mood, Australia’s economic fundamentals still look pretty healthy compared with many other countries in the West. Notably the unemployment rate at 5.2% is significantly below that of the US and Europe. Australia’s commercial property markets have been holding up well. Most markets have single digit vacancy rates with limited upcoming supply and in the office sector pre-commitment rates are high. That’s good news for landlords and investors with rents and capital values expected to see further increases this year.
The high Aussie dollar hasn’t deterred offshore property investors who accounted for a record 30% of total commercial transactions last year. For a small country with a population of only 23 million (equivalent to the population of Shanghai), Australia certainly punches above its weight in terms of real estate investment activity. Last year commercial investment volumes were the third highest in Asia Pacific, amounting to around two-thirds of the volumes in Japan and China, and remember these are the world’s second and third biggest economies. The factors that attract international investors to Australia are varied and numerous – including its economic drivers, attractive yields, relatively stable property cycles and high market liquidity.*
Australia’s highly transparent property market is also attractive to both domestic and international investors. In our last Global Transparency Survey in 2010, Australia was ranked number one in the world in terms of property market transparency. In quarter two we will be launching the 2012 results so we will soon find out whether Australia will maintain its crown. Stay tuned.
The Australian economy is expected to strengthen over the course of 2012 due to a pick-up in industrial production, retail sales and global growth…all boding well for the country’s property markets.
* For more details on the drivers of the Australian property market and 2012 outlook, please read a recent paper “Australia: What next for property?” prepared by my Australian research colleagues David Rees, Andrew Ballantyne and Karen Wales.