Office, retail and industrial property returns have outpaced those from the stockmarket, according to a new report.
The average annual return on commercial property was 12.2 percent for the September 2016 quarter according to the Property Council/IPD Australia All Property Index, with the ASX 200 a total return of 7.58 percent.
Dr Anthony De Francesco, executive director of MSCI told the Australian Financial Review rising bond yields and some poorer performing property fundamentals could further ease the returns in commercial real estate.
"A key risk factor for the property sector is the prospect of a narrowing cap rate spread to the bond rate if we see tightening interest rate cycle in the near term," he said.
"Another risk factor is the generally soft space market fundamentals which have not translated into strong net operating income growth."
"A key driver of capital return had come been the firming in capitalisation rates.
"This is continuing, although signs are emerging of cap rates starting to stabilise and even soften across some sub-sector markets.
"We've seen steep cap rate compression over the last few years, which has delivered very firm cap rates across all property sectors. In fact, pricing within the property market is now far more aggressive than at the peak of the market before the GFC hit.
"Back then, the overall cap rate for commercial property stood above 6.3 percent. Now it sits at six percent."