FOLKESTONE REAL ESTATE OUTLOOK MARCH 2016

Transcription

1 FOLKESTONE REAL ESTATE OUTLOOK MARCH

2 ECONOMIC OUTLOOK 2

3 Dec-1990 Jun-1992 Dec-1993 Jun-1995 Dec-1996 Jun-1998 Dec-1999 Jun-2001 Dec-2002 Jun-2004 Dec-2005 Jun-2007 Dec-2008 Jun-2010 Dec-2011 Jun-2013 Dec-2014 Jun-2016 Dec-2017 % ECONOMIC CONDITIONS NATIONAL GROWTH Australian GDP Growth: Average = 3.1% Average = 2.8% Source: ABS, Bloomberg Economic growth remains below trend although is picking up Transition away from mining to non-mining sector underway Household spending, dwelling investment and the services sector are supporting growth Compares well to our global peers who are struggling with growth 3

4 % ECONOMIC CONDITIONS STATE GROWTH Domestic Final Demand : 2014 and Sep-14 Sep WA QLD AUS TAS SA NSW VIC Source: ABS NSW and VIC are powering the economy WA and QLD impacted by mining downturn NSW buoyed by strong infrastructure investment and VIC by strong population growth 4

5 ECONOMIC CONDITIONS EMPLOYMENT Employment Growth by Sector: Year to November 2015 Health Professional Services Retail Financial Services Admin Services Education Accommodation Services Other Services Information/Media Transport Wholesale Utilities Public Admin Construction Agriculture Real Estates Mining Recreation Services Manufacturing -60,000-20,000 20,000 60, , , ,000 No. of People Source: ABS Employment growth reflects an economy in transition Low capital, high labour intensive sectors are powering ahead at expense of manufacturing and mining Population growth, solid consumer spending, aging population and the decline in $A is driving service sector employment growth 5

6 FINANCIAL MARKET CONDITIONS CASH RATES (YIELDS) Cash Rate Expectations: Year to July 2017 % Dec-15 Feb Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Source: Yield Report Monetary policy remains accommodative The market is factoring in at least one 25bps cut from the RBA in 2016 The RBA is ready to cut interest rates if economic conditions deteriorate 6

7 REAL ESTATE CAPITAL MARKET OUTLOOK 7

8 $bn CAPITAL CONDITIONS TRANSACTIONS Non-Residential Transaction Volume: Domestic Foreign Source: Cushman & Wakefield Non-residential sales turnover levels remain elevated Australia continues to be a magnet for global capital Global investors chasing Australia s relatively high yield, transparent market and solid economic growth story 8

9 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Dec-15 % CAPITAL CONDITIONS CAP RATES (YIELDS) Real Estate Cap Rates vs 10 Year Bond Yields: Retail Office Industrial 10 Year Bonds Source: MSCI/IPD Cap rates (yields) now heading to pre-gfc lows Driven by weight of money chasing real estate capital fundamentals running ahead of physical real estate fundamentals The relatively wide yield spread vs 10 year bonds appears attractive compared to 2007 when the yield spread evaporated 9

10 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Dec-15 $bn % CAPITAL CONDITIONS LENDING Non-Residential Lending Exposure: Total Non-Residential Lending (LHS) Impaired Assets to Exposures (RHS) Source: APRA Non-residential lending levels almost back to 2007 record levels of $250bn Impaired loans relatively low Non-residential lending margins are moving up as bank s wholesale cost of funding increases 10

11 CAPITAL CONDITIONS ASSET CLASS RETURNS Asset Class Total Returns: to 31 December Year 3 Years 5 Years 10 Years A-REITs Direct Property Equities Bonds % Source: MSCI/IPD UBS S&P/ASX A-REITs have been stand out performers best performing in 4 of the past 5 years and best over 3 and 5 years Both A-REITs and non-residential direct property have performed well in a low growth environment up 14.4% and 14.0% respectively in

12 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Rolling Annual Returns % CAPITAL CONDITIONS REAL ESTATE RETURNS 20.0 Non-Residential Total Returns: to 31 December 2015 Income Return Capital Return Total Return Source: MSCI/IPD In 2015, non-residential property generated its highest total return since 2007 at 14.0% The relatively stable income return of circa 6.8% continues to be attractive to investors 12

13 CAPITAL CONDITIONS REAL ESTATE RETURNS Non-Residential Sector Total Returns December 2015 Source: IPD Industrial: Industrial Estate Other Large Format Retail Sydney CBD Office Office: Non-CBD Retail: Neighbourhood Industrial: High Tech Business Park Retail: Sub Regional Melbourne CBD Office Industrial: Warehouse Office: CBD Industrial: Distribution Brisbane CBD Office Retail: Regional Canberra Region Office Retail: Super & Major Regional Adelaide CBD Office Perth CBD Office % p.a. Industrial estates, other (health, medical, hotels and carparks), large format retail and Sydney CBD office were the best performing 13

14 REAL ESTATE MARKET OUTLOOK 14

15 REAL ESTATE MARKET OFFICE Net Demand: Major Office Markets: Year to January 2016 Sydney CBD Melbourne CBD Perth CBD Canberra Adelaide CBD Brisbane CBD -50, , , , ,000 sq.m. CBD office tenant demand mirrors the economic transition from mining to service sector Demand in Sydney and Melbourne surprised on the upside in past year, driven by improving economies, strong employment growth and in the case of Sydney, strong demand from IT companies Perth was positive due to Shell Australia and the State Government moving back into the CBD we expect demand to be weak in 2016 Sydney and Melbourne remain top picks for both global and domestic investors 15 Source: Property Council of Australia

16 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 % REAL ESTATE MARKET OFFICE CBD Vacancy Rate: Sydney CBD Melbourne CBD Brisbane CBD Perth CBD Adelaide CBD Canberra Source: Property Council of Australia Sydney and Melbourne vacancy rates have fallen Brisbane and Perth CBD rates remain high and set to go higher as demand remains weak in both markets and new supply hits these markets 16

17 Household Goods Clothing & Soft Goods Total Cafes, restaurant, T/A Food Department Stores Other Retailing % p.a. REAL ESTATE MARKET RETAIL Retail Trade by Sub-Group: 1 and 5 Year Growth to December Year 5 Years Source: ABS Retail spending has improved during the last year (although has slowed in the past two months) Household goods the standout driven by strong housing sector Food was a standout in past few years fallen back in 2015 as competition between supermarkets driving price deflation 17

18 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 % REAL ESTATE MARKET RETAIL Australian Supermarket Sales Growth: Coles Woolworths Source: Company Reports / JP Morgan The Woolworths Coles battle continues Reflective of a dynamic retail market 18

19 REAL ESTATE MARKET INDUSTRIAL Adelaide Prime Industrial Yields: December 2014 and Canberra Perth Brisbane Melbourne Sydney % Source: CBRE Industrial property bifurcation strong demand for prime logistics/distribution sheds from investors and older style inner city sites from developers wishing to convert to residential Strong appetite from global investors for prime industrial 19

20 REAL ESTATE MARKET RESIDENTIAL Residential House Prices: January 2016 Melbourne 3 Months 1 Year Sydney Australia 8 Capitals Canberra Brisbane Adelaide Hobart Darwin Perth % Source: CoreLogic RP Data The residential market is not homogenous Sydney and Melbourne have been strong but other markets have struggled 20

21 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 $bn REAL ESTATE MARKET RESIDENTIAL Housing Credit Growth: Owner Occupier - Construction Owner Occupier - Refinancing Investment - Construction Owner Occupier - Purchase of New Dwellings Owner Occupier - Purchase of Existing Dwellings Investment - Purchase of Dwellings Source: ABS Housing growth has been strong buoyed by investor lending and owner occupier purchase of existing dwellings Investor lending has fallen in the past six months as APRA guidelines impact 21

22 Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Rolling Annual No. of Approvals REAL ESTATE MARKET RESIDENTIAL Housing Approvals by Type: ,000 Houses Apartments Total 200, , ,000 50,000 0 Source: ABS In 2015, 228,171 dwellings were approved 50% above long term average of 155,000 For the first time there is almost a 50/50 split between housing and apartment approvals Despite the APRA crackdown on lending, apartment approvals were up 26.6% while housing approvals were up only 1.3% in

23 SOCIAL INFRASTRUCTURE 23

24 bn % SOCIAL INFRASTRUCTURE SENIORS LIVING Australian Population >65 Years: No Years No. 85 years plus % of Total Population Seniors living becoming key investment sector Strong demographics driving the demand for seniors living Sector undergoing significant transformation: boutique, cottage industry to one of scale through consolidation a shortage of quality accommodation driving innovation in product recognition by institutional investors as a legitimate investment opportunity 24 Source: ABS and Treasury Projections

25 Proportion of operational residential aged care places SOCIAL INFRASTRUCTURE SENIORS LIVING Number of Operational Residential Aged Care Places Required Between Existing stock Replaced stock New stock 300, , , , ,000 50, Source: Aged Care Financing Authority Australian government estimates need to build 82,000 additional places over the next 10 years compared to 36,778 new places that came on-line over last 10 years Almost half of existing stock will need to be refurbished or rebuilt to meet new standards and consumer expectations 25

26 Yield SOCIAL INFRASTRUCTURE - CHILDCARE Childcare Centre Sales Yields: 2010 to % Metro Yields Regional Yields Linear (Regional Yields) 13.00% 11.00% 9.00% 7.00% 5.00% 3.00% Source: Folkestone Demographics and socio-economic changes continue to drive demand for early learning accommodation Investor interest has increased due to strong demand, long term, triple net leases, government support of sector yields have declined as investor appetite increases 26

27 A-REIT SECTOR OUTLOOK 27

28 Australia Contiential Europe United Kingdon United States Japan Singapore Hong Kong A-REIT GLOBAL PERFORMANCE A-REIT vs Global REIT Total Returns: Year to 19 February YTD 1 Year Source: Thomson Financial DataStream/UBS A-REITs have been standout performers globally 28

29 A-REIT - YIELDS ASX Sector Yields and Cash Rate: February 2016 Materials Financials Telcos Utilities A-REITs ASX 200 Staples Industrials Discretionary Engery Info Tech Health Care Cash % Source: IRESS A-REITs have attracted yield, strong balance sheets (gearing circa 30.0%), sustainable payout ratios A-REITs forecast to generate total return of circa 10.0% in 2016 Active selection of securities key as wide variation in individual security performance will continue in

30 SUMMARY Divergence in performance between mining and non-mining states to widen 2016 will be a challenging year to deploy capital Investors will continue to focus on quality non-residential assets with secure income Residential property markets to cool but no major collapse anticipated Real estate social infrastructure assets will continue to be in demand A-REITs will continue to prove popular as a safe haven in the equities markets 30

31 REAL ESTATE IQ Real Estate IQ provides our latest thinking on real estate to assist you in navigating the world of real estate markets and issues, to make more informed investment decisions. 31 Visit:

32 DIRECTORY Folkestone Limited ASX Code: FLK Website: ABN: Level 12, 15 William Street Melbourne Vic 3000 T: Level 10, 60 Carrington Street Sydney, NSW 2000 T: Board of Directors: Garry Sladden Non-Executive Chairman Mark Baillie Non-Executive Deputy Chairman Greg Paramor Managing Director Ross Strang Non-Executive Director Company Secretary: Scott Martin Investor Relations: Lula Liossi T: lliossi@folkestone.com.au DISCLAIMER: This paper has been published for information purposes only. The information contained in this paper is of a general nature only and does not constitute financial product advice. This presentation has been prepared without taking account of any person's objectives, financial situation or needs. Because of that, each person should, before acting on this presentation, consider its appropriateness, having regard to their own objectives, financial situation and needs. You should consult a professional investment adviser before making any decision regarding a financial product. In preparing this presentation the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which has otherwise been reviewed in preparation of the paper. The information contained in this paper is current as at the date of this paper and is subject to change without notice. Past performance is not an indicator of future performance. Neither Folkestone Limited, nor any of their associates, related entities or directors, give any warranty as to the accuracy, reliability or completeness of the information contained in this paper. Except insofar as liability under any statute cannot be excluded, Folkestone Limited and its associates, related entities, directors, employees and consultants do not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from the use of this paper. If a product managed by Folkestone Limited or its associates is acquired, Folkestone Limited or its associates and related entities may receive fees and other benefits. The author 32 of this paper does not receive commissions or remuneration from transactions involving the financial products mentioned in this paper. Registry: Boardroom Pty Limited PO Box R67, Royal Exchange NSW 1223 Telephone: or enquiries@boardroomlimited.com.au Website: