CBRE PROPERTY

MARKET OVERVIEW 2019

Ben Martin-HenryCBRE Research

Head of Capital Markets, Office and BTRben.martin-henry@cbre.com.au

ECONOMY

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

% c

han

ge p

.a. o

n q

uart

erl

y p

eri

od

s

Australia US Global

AUSTRAL IA W ON’T AVO ID GLOBAL S LOW DOW N

A N N U A L G D P F O R E C A S T S

Source: CBRE Research

Source: CBRE Research

I NTEREST RATE EXPECTAT IONS

RISES IN 2020 4 CUTS IN 2019

RISES IN 2020 2 CUTS IN 2019

ECONOMIC OUTLOOK HAS DETER IORATED

C H A N G E D O U T L O O K S I N C E L A S T Y E A R

ECONOMIC GROW TH IN 2019

3.6% 2.9%

2.5% IN 2020

Source: CBRE Research; Deloitte Access Economics

2.8% 1.8%

2.5% IN 2020

RESIDENTIALStability Emerging

PERTH RES IDENT IAL MED IAN PR ICES

H O U S E P R I C E S A R E S T I L L F A L L I N G ; U N I T P R I C E S L E V E L L I N G ?

Source: CBRE Research

$200

$250

$300

$350

$400

$450

$500

$550

$600

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Median house price ($) Median unit price ($)

$480,000Median house price (June quarter 2019)

down 4% q-o-q and 6.8% y-o-y

14% lower than 2015 peak

$376,000Median unit price (June quarter 2019)

down 1.1% q-o-q and 6.5% y-o-y

18% lower than 2017 peak

ANNUAL SALES VOLUME DECL INES F LATL INE

D E C L I N E N O T A S S E V E R E A S E A S T C O A S T M A R K E T S

Source: CBRE Research

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Houses Units

22,368House sales (year to June 2019)

down 4.5 y-o-y

down ~32,000 since 2014 peak

7,283Unit sales (year to June 2019)

down 9.2% y-o-y

~35% below 2014 peak

COMPLET IONS AND CONSTRUCT ION

B O T H T R E N D I N G D O W N

Source: CBRE Research

0

500

1,000

1,500

2,000

2,500

0

2,000

4,000

6,000

8,000

10,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Apartments under construction (lhs) Apartments completed (rolling annual) (lhs) Apartments commenced in quarter (rhs)

APPROVALS CONTINUE THE IR DECL INES

A N N U A L A P P R O V A L V O L U M E S

Source: ABS, CBRE Research

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Greater Perth Houses Greater Perth Other

3,247Medium/high density approvals year to

June 2019. Now 62% below their mid

2015 peak and dipping again

10,211Detached dwelling approvals over the

past year. Trending at the lowest total

on record

RENTS & VACANCY

V A C A N C Y U P S L I G H T L Y I N T H E Q U A R T E R B U T S T I L L S T R O N G

Source: ABS, CBRE Research

2.9% vacancy

lowest level since

2013

$325 for units

up marginally y-o-y

$340 for houses

up 3% y-o-y 0%

1%

2%

3%

4%

5%

6%

7%

$0

$70

$140

$210

$280

$350

$420

$490

$560

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Vaca

ncy

Rate

Med

ian

ren

t ($

/week)

Median 3br house rent ($/week) Median 2br unit rent ($/week) Vacancy rate (%)

SUMMARY

C U R R E N T T R E N D S

Source: ABS, CBRE Research

Current indicators, while showing encouraging signs, are still patchy

• Vacancy rate has improved 6.6% Sept 2016 to 2.9% in June 2019.

• ~3.6% net yield for units – Will this entince investors?

• The current Perth market is still dominated by Owner Occupiers

- Downsizers & First Home Buyers

• Demand for larger apartments and low to medium rise

developments and townhouses

OFFICERecovery on the way

PERTH & BR I SBANE TO OUTPERF ORM

P R I M E N E T E F F E C T I V E R E N T A L G R O W T H

Source: CBRE Research

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD Canberra Civic

Last 12 months Next 24 months (annualised)

PERTH GROW TH DR IVEN BY INCENT IVE DECL INES

C O M P O N E N T S O F P R I M E N E R G R O W T H O V E R T H E N E X T 5 Y E A R S

Source: CBRE Research

TW O-T I ER MARKET?

P R I M E V S S E C O N D A R Y V A C A N C Y R A T E S J U N - 1 9

Source: PCA, CBRE Research

0%

5%

10%

15%

20%

25%

Sydney CBD Melbourne CBD Brisbane CBD Adelaide CBD Perth CBD ACT

Prime Secondary

RETAILConditions remain challenging

Source: Deloitte, CBRE Research

DEPARTMEN T STORES & F ASH ION SL ID ING

R E T A I L S H A R E O F D I S P O S A B L E I N C O M E

0%

1%

2%

3%

4%

5%

6%

1984 1990 1996 2002 2008 2014 2020 2026

Department stores and discount department stores Apparel Households goods Other retailing

Source: CBRE Research, company accounts

K -MAR T OUTPERF ORMS

S T O R E C O U N T A N D S A L E S P E R S T O R E

0

50

100

150

200

250

300

350

$0

$10

$20

$30

$40

$50

$60

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

Kmart Target Big W David Jones Myer

($m

)

Store count (RHS) Sales/store (LHS)

Source: CBRE Research

W HAT ABOUT SUB REG IONALS ?

N E T F A C E R E N T I N D E X

100

150

200

250

300

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Ind

ex

100 =

Q1

2000

Retail Sales Neighbourhood Regional Sub-Regional

LOGISTICSConditions softening

CONTR IBUT ION TO INDUSTR IAL GVA

D R A G G E D D O W N B Y C O N S T R U C T I O N

Source: Australian Bureau of Staistics

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

An

nu

al C

on

trib

utio

n (

%)

Manufacturing Utilities Construction Transport & warehousing Wholesale GVA - Industrial

PERTH RECOVERY BEGUN?

S U P E R P R I M E N E T F A C E R E N T S

$60

$70

$80

$90

$100

$110

$120

$130

$140

$150

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$/s

qm

Greater Adelaide Greater Brisbane Greater Canberra Greater Melbourne Greater Perth Greater SydneySource: CBRE Research

SUPER PR IME INDUSTR IAL RE -RATED

B E S T I N C L A S S N A T I O N A L P R O P E R T Y Y I E L D S

Source: CBRE Research

4%

5%

6%

7%

8%

9%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Office Super Prime Industrial Regional Shopping Centres

CAPITAL MARKETSMore yield compression to come

Source: CBRE Research

AUSTRAL IAN COMMERC IAL PROPERTY INVESTMENT

2 0 1 9 S H A P I N G T O B E A N O T H E R Y E A R O F H I G H V O L U M E S

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sale

s V

olu

me (

$m

)

Industrial Office Retail

AUSTRAL IAN BANKS LOS ING MARKET SHARE

A U S T R A L I A N C O M M E R C I A L R E A L E S T A T E D E B T

Source: APRANote: Covers major domestic banks and all foreign banks

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50,000

100,000

150,000

200,000

250,000

300,000

$000s

Domestic Bank Actual Exposure Offshore Bank Actual Exposure Major Domestic Bank Share Offshore Bank Share

Source: RBA, CBRE Research

PROPERTY Y I E LDS TAKE T IME TO AD JUST

Y I E L D S : A U S T R A L I A P R I M E C B D O F F I C E A N D 1 0 - Y E A R B O N D S

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Australia Prime CBD Office Aus. Govt. 10-year bond yield Trend bond yield (24 mma) lagged 12 months

r = 0.61

r = 0.82

Forecast

Source: CBRE Research

BONDS – A R I SK - F REE CAP ITAL LOSS ?

F O R E C A S T B O N D Y I E L D S A N D T O T A L R E T U R N S F R O M D E C - 1 9 I N V E S T M E N T

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Dec-25 Dec-26 Dec-27 Dec-28 Dec-29

1 year held 2 years held 3 years held 4 years held 5 years held 6 years held 7 years held 8 years held 9 years held 10 years held

10-year Aus Gov Bond Yield (upper x axis) Annualised bond total return for Dec-19 investment (lower x axis)

THANK YOUBen Martin-Henry

CBRE ResearchHead of Capital Markets, Office and BTR

ben.martin-henry@cbre.com.au