Consumer and housing sectors key to economic recovery
Consumer and housing sectors key to economic recovery
15 January 2014
Sydney, 15 January
will be the turnaround for the Australian economy and commercial property
markets according to a new ViewPoint from CBRE.
report states that despite the current sub-trend economic growth, 2014 will see
consumer and housing sectors show significant growth, which will help offset the
drag of mining investment.
growth was below trend for 2013, with growth of close to 2%, compared with a
long term average of 3.25%. However, Stephen McNabb, CBRE’s Head of Research
for Australia said that while the early part of 2014 is expected to also feel a
little flat, the prospects for growth in the second half are looking more
sales, approvals for new houses, asset prices and confidence have all approved
in the last 3-6 months, most likely a delayed response to the interest rates
cuts. We expect 2014 and 2015 to see a
recovery in consumer spending which will be more supportive of a broader
recovery, together with a stronger boost from net exports,” said Mr McNabb.
expect to see the economy growing at a rate around 2.75% by the end of 2014 and 3.5% in 2015. The two states with the
highest improvement prospects and NSW and QLD,” he added.
– Consumer, housing and exports should make the recovery clearer … particularly
a policy perspective, Australia does appear to be a little ‘out of sync’ with
the rest of the world. However, the world economy is a relative game, so as
U.S. growth gradually improves and U.S interest rates rise (or threaten to),
demand for AUD assets is expected to slow from the strong levels of the last
report states that the housing market will provide the biggest boost to the
economy, particularly in NSW. Dwelling
approvals were up almost 20% year on year nationally in the third quarter of
2013. Victoria has been overtaken by NSW
in terms of activity, with QLD also faring well. WA will see slowing levels of
activity as economic and population growth eases post the mining investment boom.
office rent cycle is expected to remain under pressure for an extended period,
with vacancy rates continuing to climb throughout 2014, peaking in
2015/16. This will keep a lid on rent
growth across all markets as supply exceeds demand.
absence of rent growth, accompanied by higher bond yields, is likely to cause
yield compression to slow. The presence of ‘rent growth risk’ is likely to see
prime assets continue to perform in 2014.”
terms of pricing, periods of below trend growth in nominal GDP/income are not
normally associated with falling yields. We expect the combination of weak
income growth, rising bonds combined with ongoing falls in risk premiums (i.e.
flat to higher borrowing costs) to slow the rate of yield compression in 2014,
particularly in office markets. It is possible that we may even see some
stability or modest increases in yields in some office markets as investors
require income yield to compensate for the absence of a strong rent growth
story in the next 3-4 years.”
outlook for the retail sector is expected to improve as spending levels rise in
response to lower interest rates and improved economic growth. While a boom is
not expected, modest increases in credit appetite from households supports the
sector moving forward.
expect retail sales to increase back into the 3-4% range over the next year or
so. This is below the pre-GFC levels of 6-8%, but relatively stronger than
an indirect benefit from the higher housing construction activity, sectors such
as Bulky goods are expected to show a turnaround in 2014.”
rent growth by sector
rent growth softened to a flat overall performance in 2013, but the report
states that rents are expected to stabilise through 2014 and to recover in
2015. This will support a broader yield reduction in 2015 as the rent growth
recovery becomes a little more entrenched.
While the demise of local car manufacturing has
grabbed the headlines (following the closure of Mitsubishi in 2008, Holden and
Ford’s decision to close domestic manufacturing from 2016-2017), the positive
kick to the broader manufacturing sector from a lower AUD, an emerging recovery
in the housing sector and consumer led growth is expected to provide some offset.
Indeed, the motor vehicle and parts manufacturing
sector produces $20b worth of output per annum, marginally smaller than a
decade ago ($21b), while the services to transport and storage sector grew from
$28b to $54b in the same period; the latter being a bigger driver of industrial
Outlook for investment markets
The key point for prime property yields in 2013 was an
improvement in risk premiums with borrowing costs stable, having fallen
significantly in 2012. Lower risk premiums coincided with a reallocation from
cash into property and equities by domestic fund managers. International demand
for Australian assets was also strong. The annual
foreign acquisition total of $4.8 billion eclipsed the previous 2011 peak of
$3.4 billion and the expansion of this sector continues at a fast rate,
increasing by over $15 billion since 2007.
2014 the outlook remains positive. While Mr McNabb expects to see a gradual
decrease in the amount of foreign investment as the rest of the world economy
begins to improve (particularly the U.S.) and the high relative interest rate
wanes, he doesn’t believe this will signal an unwind of Australia’s existing
are likely to be some supportive offsets, notably an expectation that the
Australian economy should be on a firmer domestic driven growth footing.”
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.