AUSTRALIA REAL ESTATE MARKET OUTLOOK 2016

FEBRUARY 2016

The Australian economy played out as expected in 2015 – consumer spending solid, exports and housing provided a boost to output and there were signs of life in the labour market in the second half of the year.

One exception – non-mining CAPEX spending remained flat which saw overall GPD growth come in slower at 2.5% rather than the 2.75% previously expected.

Our view in 2016 is that the domestic economic growth will improve modestly.

In 2016, Sydney and Melbourne will remain best placed for stronger demand across all sectors. We expect a little more stability in QLD and later WA as these pass the bottom of the mining investment wind down.

CAPITAL MARKETS

2015 constituted another strong year of sales with a total of $29.1 billion, slightly lower than the record $29.6 billion in 2014.

CAPITAL MARKETS

Offshore demand for Australian property assets firmed in 2015 with Australia’s higher interest rate/yield structure supporting

attraction of capital to all sectors.

Offshore investors accounted for 43% of overall transaction activity.

While Australia’s relative return margin to the rest of the world has narrowed, there is still a sizeable gap to support offshore

demand for property assets in 2016.

2015 also saw a marked increase in outbound capital targeting overseas real estate. This could partly be attributed to Australian investors being crowded out of the domestic market and seeking to deploy capital elsewhere.

CAPITAL MARKETS

INDUSTRIAL

Rental demand slower to recover but started to show some growth towards the end of 2015. Lower AUD and high level of construction activity providing support to sector. As a result, rent growth in 2016 is likely to improve in most Australian markets.

OFFICE

Rental demand improved in 2015 with rent growth evident in Sydney, Melbourne and Canberra. Brisbane and Perth have experienced large declines in effective rents but 2016 looks like the bottom of the cycle for these markets.

RETAILRetail trading backdrop

solid, driven by rising residential activity and prices and also growth

in employment and tourism. Annual growth

4.1% for the year.

RETAIL

Retail trading backdrop solid, driven by rising residential activity and prices and also growth in employment and tourism. Annual growth 4.1% for the year.

RESIDENTIAL

Building cycle appears to have peaked with most markets except Sydney moving to a state of balance or oversupply risk and therefore slower rates of price and rent growth are expected in 2016.

RISKS FOR 2016• Financial market volatility and global growth uncertainty

unsettles investors and consumers.

• China slowdown negatively impacts Australia.

• Domestic economy deteriorates due to a more rapid slowdown in mining and residential construction.

• Increased expectations of rising interest rates push property yields higher.

OPPORTUNITIES FOR 2016• High levels of office incentives present good opportunities for

tenants.

• Owner-occupiers could unlock capital at a time when pricing is firm.

• Brisbane and Perth markets may bottom in 2016 presenting counter-cyclical opportunities.

• Potential yield convergence between grades in selected office markets, most likely to be Sydney CBD, Chatswood, Adelaide and Southbank.

• Changing the retail mix in developments to accommodate a changing demography and consumer preferences.

THANK YOUTo view the full report, visit the research centre on www.cbre.com.au