Australian commercial property 9.1% total return for year ending June 2013: Property Council/IPD Australia All Property Index

Australian listed infrastructure was the best performing asset class over the year to June with an annualised return of 21.7% per annum.

This is reflected in the Property Council/IPD Australia All Property Index Q2 results which show a total return of 9.1% for the year ending June 2013.

This is comprised of a 7.3% income return and 1.7% capital return.

The results represent a marginally lower total return compared with the previous quarter’s 9.2% and last year’s 9.9%.

The index shows unlisted property and infrastructure performed consistently over the past three years, while listed investment asset classes displayed ‘’considerable return variability’’.

The Property Council/IPD Australia All Property Index has a combined value of A$137 billion representing 1574 assets. It aims to provide a broad measure of returns for commercial property investment in Australia.

The latest index results indicate that the commercial property market continues to soften with total returns falling below the long-run average annual return of 10.0%.

“The latest index results demonstrate that the return performance for the Australian commercial property market continues to soften,’’ Dr Anthony De Francesco, executive director of IPD Australia and New Zealand, says.

‘’This is consistent with sluggish demand conditions, particularly for core property sectors underpinned by weak white collar employment growth and retail sales growth.’’

This scenario is likely to persist until there is a significant strengthening in macroeconomic activity, De Francesco says.

“Across unlisted real asset markets, investment in infrastructure is strengthening with an uptick in return performance. The attractiveness of infrastructure as an asset class is seeing greater inflows of capital into the sector.”

Property sector returns for retail, office, industrial, hotels and healthcare are 8.8%, 9.4%, 9.3%, 6.3% and 11.6% respectively, with healthcare the only sector showing improvement over the past 12 months.

The overall mild softening across sectors is due to weak market demand conditions, De Francesco says. This is characterised by a soft labour market where employment growth is below the long-run average growth, and softer retail MAT (Moving Annual Turnover) growth, which is also substantially below its long-run average growth rate.

Within the office sector, Green Star-rated assets outperformed the Australian all-office market by 140bps with a total annualised return of 10.8%. There was variability in returns across office grades and environmental ratings for the Sydney CBD office market.

A-Grade office assets outperformed, delivering an annualised return of 9%. Segmenting Sydney CBD A-Grade office assets by environmental performance, higher returns were achieved by those with Green Star ratings, showing annualised returns of 13.3% per annum for June.

The IPD Australia Quarterly Green Property Index, sponsored by DEXUS Property Group, comprises property assets from 35 participants with a combined asset value of A$56 billion, representing around 90% of the IPD Australian commercial office database by capital value.