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Quarterly Property Report A U G U S T 2 0 1 9

Q U A R T E R L Y P R O P E R T Y R E P O R T | A U G U S T 2 0 1 9 2

Introduction Welcome to the latest edition of Banner’s Quarterly Property Report.

At the time of publication, there is a renewed sense of optimism in the Australian property market, after a surprise election outcome restored expectations of policy stability and the Reserve Bank of Australia resumed cutting official interest rates for the first time in nearly three years.

The downturn in residential property values continues in all capital cities, with a number of factors including tight credit supply impacting demand, however the rate of decline has eased somewhat,

1 Core Logic Property Market Chart Pack July 2019

and there are tentative signs that prices may be stabilising in Sydney and Melbourne.1

Australia’s economic growth has slowed from the highs achieved last year however the outlook remains broadly positive with employment continuing to rise, immigration underpinning population growth, and the Reserve Bank delivering two consecutive rate cuts to counter slowing growth and help boost consumption.

Beyond residential, metropolitan office markets are experiencing strong demand along the eastern seaboard, with rents continuing to rise. Capital

growth is easing slightly following a period of strong gains, however values remain underpinned by low vacancy rates and easing supply.

Meanwhile, the industrial sector is being boosted by expectations of strong growth in ecommerce and elevated levels of infrastructure spending, while some of the same factors are weighing on the performance of retail property. In our latest Spotlight section, we explore the dichotomy between the performance of these two closely related sectors.

We hope you find this report useful..


Economic update

Gross domestic product rose by 1.8% in the first quarter of 2019 from a year earlier, a slowdown from the 2.3% growth in the final quarter of 2018.

Australia’s unemployment rate was at 5.2% in June, steady with May, but up from a seven-year low of 4.9% in February.

The Reserve Bank of Australia cut its target cash rate by two 25 basis point installments in June and July, to a new record low of 1%.

Australia’s population continued to grow by a strong 1.6% in 2018.

Source: Australian Bureau of Statistics, Reserve Bank of Australia

Australia’s economic growth has slowed from its recent highs as declining house prices and a prolonged period of subdued wages growth weigh on household consumption.

Gross domestic product rose by 1.8% in the first quarter of 2019 from a year earlier, compared to a 2.3% rise in the final quarter of 2018, and well down from last year’s peak of 3.4%.

Falling rates to support consumptionThe Reserve Bank of Australia (RBA) has responded to the softer economic environment by delivering its first cuts to official interest rates in nearly three years.

The central bank cut its cash rate target by two 25 basis point instalments in June and July to a new record low of 1.0%. The move was aimed at boosting household spending and helping to

achieve a more assured progress toward the RBA’s inflation target of 2-3% from the current level around 1.3%, which in turn should support wages and underpin further jobs growth.

There is a risk that monetary policy easings may not be as effective as they have been in the past, owing to the high level of debt households are carrying and the already low level of interest rates, adding to the possibility that the Reserve Bank may need to cut rates again later in the year.

Labour market paints stronger picture

Despite the slowdown in gross domestic product, the labour market is performing reasonably well, with employment continuing to grow.

The unemployment rate stood at 5.2% in May, steady with the previous two months, however it has increased from

its seven year low of 4.9% in February as the labour force participation rate rose to a record high , a sign that improving job opportunities are pulling people off the sidelines and encouraging them to actively look for work.


Infrastructure spend elevatedEconomic growth in the first quarter was underpinned by government spending on services and infrastructure, as well as rising prices of some commodities, which are boosting the value of the country’s exports.

Public spending on infrastructure is likely to remain strong, with the federal government planning a record spend of $100 billion over the next ten decade on transport projects across the country.2

Tax cuts provide fiscal stimulusThe cost of living pressures being experienced by households will also be reduced by the Government’s $158 billion tax cut package which was passed by parliament in July and includes:

2 Australian Government, Budget 2019-203 Australian Government, Budget 2019-204 Reserve Bank of Australia, Statement on Monetary Policy, May 20195 Australian Bureau of Statistics, Australian Demographic Statistics, Dec 2018

+ An immediate offset for low-to middle-income earners, providing relief of up to $1,080 for more than 10 million people.

+ Lowering the 32.5% tax rate to 30% in 2024-25.3

Population supports long-term outlookOverall, the outlook remains positive with the Reserve Bank expecting economic growth to return to around 2.75% by the end of the year, supported by accommodative monetary policy and a pickup in household income, driving further falls in the jobless rate in coming years. A pickup in exports, and further out, work on new mining investment projects, are also expected to support growth.4

Over the long term, the economy remains supported by solid population growth. Australia’s population continued to increase by a steady pace of 1.6% in 2018, driven by immigration.5

27yearsU N I N T E R R U P T E D G R O W T H

O F F I C I A L I N T E R E S T R A T E S

1.0%R E C O R D L O W

5 0 B P S

C O M P A N Y P R O F I T S 1 Q

7.8%A N N U A L G R O W T H

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

$100BO V E R 1 0 Y E A R

Source: ABS, Australian government budget documents

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

Source: RBA

3.00

4.50 4.

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2.75

2.50

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1.75

1.50

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E C O N O M I C G R O W T H A N D R E S E R V E B A N K O F A U S T R A L I A F O R E C A S T S

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

Source: ABS, Projections from RBA Statement on Monetary Policy

Source: ABS, Projections from RBA Statement on Monetary Policy

3.1%

5.0%

3.4%

5.0%

2.8%

4.9%

2.3%

5.1%

1.8%

5.2%

1.75%

5.2%

2.75

%

5.0%

2.75

%

5.0%

2.75

%

5.0%

2.75

%4.

75%5.0

%

Mar

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18

June

2018

Ja

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19

Sep

2018

Feb

2019

Sep

2018

Mar

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19

Mar

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19

June

2019

May

2019

Dec

2019

June

2019

June

2020

Dec

2019

Dec

2020

June

2020

June

2021

Ju

ne 20

21

Dec

2020

A C T U A L

A C T U A L

F O R E C A S T

F O R E C A S T(*Average rate in the quarter)


Residential The correction in the housing market has begun to ease. The quarterly rate of decline in values slowed in June to 1.0% from 2.3% in March, according to Core Logic. While all capital cities continued to experience declines, there are early signs of stabilisation in the most populous centres which have been the hardest hit in recent times, with Melbourne declines easing to just 0.6% in June from 3.4% in March and Sydney easing to 1.1% from 3.2%.6

6 CoreLogic Housing Market Update, July 2019. This report is also the source of the insights in the following paragraph.7 CoreLogic Hedonic Home Value Index, June 2019 Results

There was even a slight pickup in prices in Sydney and Melbourne toward the end of the quarter. Sydney dwelling values rose by 0.1% in June from May and Melbourne values rose by 0.2% over the same period, providing further evidence that the downturn is running out of steam.7

Transaction numbers remain well below a year ago, however in recent months market activity has steadied. Annual

rental growth has also steadied at record lows, largely due to the declines in Sydney moderating. Despite some recent reductions in waiting times, properties are still taking longer to sell than they have in recent years. Auction clearance rates have been stronger relative to late 2018 and have risen further since the federal election although auction volumes remain relatively low.


J U N E M A R K E T S N A P S H O T

Source: CoreLogic, SQM Research

M E L B O U R N E

-0.6% D W E L L I N G P R I C E S ( O N Q U A R T E R )

-9.2% D W E L L I N G V A L U E S ( O N Y E A R )

-27% T R A N S A C T I O N N U M B E R S ( O N Y E A R )

1.4% R E N T S ( O N Y E A R )

3.7% G R O S S R E N T A L Y I E L D ( O N Y E A R )

2.0% V A C A N C Y I N J U N E U P F R O M 1 . 8 % I N M AY

B R I S B A N E



-13.4% T R A N S A C T I O N N U M B E R S ( O N Y E A R )

1.5% R E N T S ( O N Y E A R )



S Y D N E Y



-22% T R A N S A C T I O N N U M B E R S ( O N Y E A R )

-2.7% R E N T S ( O N Y E A R )



N A T I O N A L


-6.9% D W E L L I N G P R I C E S ( O N Y E A R )

-17.5% T R A N S A C T I O N N U M B E R S ( O N Y E A R )

+0.4% R E N T S ( O N Y E A R )




Market welcomes policy stabilityWe flagged in our last report that the opposition Labor party had planned to remove negative gearing for existing housing stock and reduce the capital gains tax concession, potentially weighing on the market. The return of the Liberal-National Coalition government for a third term means these tax changes are off the table, and instead the government plans to introduce a scheme to lower the amount first home buyers need to save in order to purchase a property, which could have a mild stimulatory effect on the market.

Under the government’s First Home Loan Deposit Scheme, eligible first home buyers who are struggling save the 20% deposit required by lenders will be given a chance to apply for a loan with a deposit as low as 5%. First home buyers with an income of up to $125,000 (or $200,000 for a couple) will be eligible to take part in the scheme which the government estimates will help about 10,000 home buyers each year.8

8 The Liberal Party of Australia media release: Helping Australians Buy Their First Home9 ABS, Lending to households and businesses, Australia, May 2019

Market responds to Royal CommissionThe direct impact on the market of the Banking Royal Commission’s final report, released in February, has been modest because the work was already well underway by banks and regulators to improve responsible lending practices and reduce investor lending from unsustainable levels.

Still, the credit environment will likely remain tight for some time given:

+ Banks continue to roll over interest only loans to principal and interest loans.

+ The rollout of Comprehensive Credit Reporting (CCR), which was due to be fully implemented by the big four banks by July 1, could make finance more difficult to obtain for some borrowers.

+ Banks are now adding additional criteria and greater scrutiny to expenses as part of responsible lending practices.

Rate cuts to boost underlying demandStrong underlying demand for housing in Australia is underpinned by steady migration-driven population growth that focuses on the major cities.

As dwelling prices have corrected, first home buyers have been a key source of housing demand due to improved affordability, less competition from investors, lower mortgage rates, and incentives. The number of lending commitments to first homeowner occupier dwellings rose by 0.8% in May, while the number of lending commitments to other home buyers fell for the third straight month, by 1.0%.9

Overall, demand remains underpinned by low mortgage rates. Following the recent cut in official interest rates by the Reserve Bank of Australia, standard variable mortgage rates have fallen to their lowest level since the 1960s.


1969

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1999

2000

2001

2002

2003

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2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

M O N T H L Y L E N D I N G R A T E S

Source: RBA, APRA

25%

20%

15%

10%

5%

0%

Housing loans; Banks; Variable; Standard; Owner-occupierSmall business; Variable; Other; OverdraftSmall business; 3-year fixedHousing loans; Mortgage managers; Variable; Basic

Q U A R T E R L Y P R O P E R T Y R E P O R T | A U G U S T 2 0 1 9 1 0

Vacancy ratesIn the rental market, vacancy rates rose slightly to 2.3% in June from 2.2% in May, but remain below year ago levels, according to SQM research. Sydney continues to have the highest vacancy rate of all the capital cities at 3.5%, up 0.2%, and the highest level for Sydney since 2005.

SQM said the increase in rental vacancies in June tends to be a seasonal rise for the start of winter however Sydney’s increase goes beyond seasonal factors and SQM expects Sydney will reach a 4% vacancy rate before 2019 is completed.10

10 SQM Research, media release “National Vacancy Rates Increased Marginally in June”, July 16 201911 Australian Bureau of Statistics, Construction Work Done, Preliminary, Mar 2019

Supply continues to adjustThe supply pipeline continues to moderate, and this is helping to rein in the decline in dwelling values. The value of private residential construction work done in the three months through March fell by 1.8% from the prior quarter and by 4.5% from the peak in the June quarter 2018.11

V A L U E O F P R I V A T E S E C T O R R E S I D E N T I A L C O N S T R U C T I O N W O R K D O N E ( $ 0 0 0 ’ S )

Source: ABS

$10,

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$9,5

39,70

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$10,

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$16,

730,

669

$18,

239,

152

$17,4

09,8

76

Mar

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Dec

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Sep-

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Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19


A more forward-looking indicator, dwelling approvals, continues to show a more mixed picture of the outlook, with a fall in approvals for standalone houses offset by a rise in new apartment

12 Australian Bureau of Statistics, Building Approvals, May 2019

approvals in May. Still, approvals remain down 20% over the year, with the annual weakness distributed across houses and apartments, suggesting the overall direction remains downward.12

N U M B E R O F N E W D W E L L I N G S A P P R O V E D

Source: ABS

20,2

11

21,5

35

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91

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64

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36

May

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6

Jun-

2016

Jul-2

016

Aug

-201

6

Sep-

2016

Oct

-201

6

Nov

-201

6

Dec

-201

6

Jan-

2017

Feb-

2017

Mar

-201

7

Apr

-201

7

May

-201

7

Jun-

2017

Jul-2

017

Aug

-201

7

Sep-

2017

Oct

-201

7

Nov

-201

7

Dec

-201

7

Jan-

2018

Feb-

2018

Mar

-201

8

Apr

-201

8

May

-201

8

Jun-

2018

Jul-2

018

Aug

-201

8

Sep-

2018

Oct

-201

8

Nov

-201

8

Dec

-201

8

Jan-

2019

Feb-

2019

Mar

-201

9

Apr

-201

9

May

-201

9


Industrial & Logistics Investor demand for industrial and logistics properties remains strong, driven by growth in the e-commerce sector and elevated levels of government spending on infrastructure. Distributors, logistics operators and retailers are increasingly seeking out properties that will deliver supply chain efficiencies, and developers are responding with increased activity in the Eastern Seaboard cities, especially Sydney and Melbourne. Capital growth continues to be strong, although it has eased to 7.4% year-on-year in the first quarter of 2019 from 8.1% in the final quarter of 2018, according to Knight Frank.13

13 Knight Frank, Pushing the Button: Speculative Development on the Rise

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

Source: Colliers

16%Retail Trade

3%Other Industries

3%Undisclosed

45%Transport, Postal

& Warehousing

18%Wholesale Trade

15%Manufacturing

50,000 sqmS P E C U L A T I V E D E V E L O P M E N T T O B E C O M P L E T E D I N 2 0 1 9

7.4% in 1QC A P I T A L G R O W T H ( Y O Y )

Source: Knight Frank


S P E C U L A T I V E D E V E L O P M E N T C O M P L E T I O N S I N M E L B O U R N E ’ S W E S T

M E L B O U R N E – R I S I N G R E N T S D R I V E D E V E L O P M E N T P I C K U P

Source: CBRE

* Estimate

85,262 sqm

87, 390 sqm

142,334 sqm*

2017

2018

2019

Demand for prime grade industrial property remains high, and this is being reflected in buoyant land values and rents. Rising rents and low vacancy rates have created an appetite for speculative developments, particularly in the city’s west.

14 Knight Frank, Melbourne Industrial Vacancy Q1 2019

Increased development activity has seen vacancy in the Melbourne market rise by more than 8% over the first quarter of 2019. Prior to this quarter, vacancy rates had been in decline for 12 months.14


S Y D N E Y – S T R O N G D E M A N D A B S O R B I N G V A C A N T S T O C K

Total vacant stock declined by more than 13% over the first quarter of 2019 driven by strong demand from third party logistics providers and the retail trade sector, according to Knight Frank, although on

an annual basis stock has remained relatively stable. High tenant demand has resulted in short take-up periods on speculative development projects, typically before or upon practical completion.

30,300 sqmT A K E U P V O L U M E S S T R O N G E S T Q U A R T E R S I N C E Q 1 2 0 0 8

48,233 sqmS P E C U L A T I V E S T O C K C U R R E N T LY O N T H E M A R K E T

180,000 sqmS P E C U L A T I V E S T O C K E A R M A R K E D F O R D E V E L O P M E N T N E X T 1 2 M O N T H S

UP 8% I N Q 1 V A C A N C Y


40% ( B E L O W H I S T O R I C A L A V E R A G E )A V A I L A B L E S T O C K


Prime yields were static in most major CBD markets in the second quarter of 2019 when compared to the fourth quarter of last year, according to data from CBRE. However vacancy rates continued to fall across the state capitals, with the exception of Perth and Canberra, as new supply eased.

Rents continued to grow in the major eastern seaboard cities of Sydney, Melbourne and Brisbane15 as occupiers in the technology, health, education, property and creative industries demonstrate a preference for inner city properties.16

15 CBRE Australia Office Marketview Snapshot Q2 2019

16 Colliers International Metro Office First Half 2019

S Y D N E Y

UP 1.2%R E N T S

3.4%V A C A N C Y ( V S 3 . 7 % I N Q 4 2 0 1 8 )

4.75%Y I E L D ( S T E A D Y A T 4 . 7 5 %)

M E L B O U R N E

UP 3.0%R E N T S

2.2%V A C A N C Y ( V S 3 . 0 % I N Q 4 2 0 1 8 )

4.85%Y I E L D ( S T E A D Y A T 4 . 8 5 %)

Office Q 2 P R I M E C B D S N A P S H O TSource: CBRE


Industrial properties, once considered the poorer cousins to retail, are now enjoying their time in the sun.

Historically, retail as an asset class has been favoured by investors over industrial property in Australia. This is partly because retail assets are typically located closer to infrastructure and population centres, and also because they allow the spreading of risk across multiple tenants, which has traditionally given them a more stable income return.

However trends in ecommerce and changing consumer behavior have recently put logistics and industrial properties high on the radar of investors, with many institutional investors now actively increasing their exposure to the asset class at the expense of retail.

Let’s take a closer look at the differing fortunes of these two sectors.

RetailGrowth in e-commerce and pressure on household budgets is changing the way people shop in Australia, and what they are purchasing.

Consumption by Australian households has slowed, weighed down by a period of low wages growth and declining house prices.

In a phenomena known as the “wealth effect”, falling market house prices can make people feel they are less wealthy even when the loss isn’t realized, and thus weigh on confidence about their finances and reduce their willingness to spend. Retail turnover in Australia rose by just 0.1% in May after falling by the same amount the month earlier.

While spending at supermarkets and grocery stores has been relatively

resilient, people are spending less on high cost discretionary items such as household goods.

At the same time, the ability to browse products online has made it easier for consumers to purchase products without stepping into a physical store.

According to a recent report titled “Australia Viewpoint – A Tale of Two Sectors”, CBRE says secondary malls with a tenancy mix weighted toward discretionary spending are the most exposed to cap rate expansion in the current environment, while non-discretionary, convenience focused centres continue to be in demand from investors.

Spotlight on the pivot from retail to industrial


F O O D , G R O C E R I E S

A N D L I Q U O RH O U S E H O L D

G O O D S

C L O T H I N G , F O O T W E A R

A N D A C C E S S O R I E S

D E P A R T M E N T S T O R E S

C A F E S , R E S T A U R A N T S

A N D T A K E A W AY

F O O D

Jan-2017 10,388.5 4494.8 2048.6 1553.6 3641.7

Feb-2017 10,413.0 4452.0 1967.5 1543.6 3643.4

Mar-2017 10,350.4 4438.1 1969.0 1541.1 3629.7

Apr-2017 10,444.7 4481.9 2002.1 1600.6 3660.2

May-2017 10,467.1 4564.0 2019.1 1556.9 3692.4

Jun-2017 10,457.4 4598.3 2017.0 1542.8 3703.0

Jul-2017 10,503.2 4524.0 2035.2 1535.6 3697.6

Aug-2017 10,473.5 4478.7 2021.7 1526.2 3651.6

Sep-2017 10,546.7 4451.1 2004.4 1563.0 3676.8

Oct-2017 10,575.6 4454.7 2021.4 1569.9 3738.4

Nov-2017 10,591.5 4661.6 2051.0 1546.7 3762.5

Dec-2017 10,654.3 4557.7 2049.0 1547.1 3739.3

Jan-2018 10,661.1 4564.9 2048.2 1535.0 3742.8

Feb-2018 10,685.8 4590.5 2061.8 1549.7 3770.5

Mar-2018 10,770.6 4570.2 2036.6 1549.4 3739.4

Apr-2018 10,811.4 4620.3 2047.3 1536.2 3783.1

May-2018 10,863.6 4607.0 2101.1 1591.9 3751.7

Jun-2018 10,892.5 4623.7 2120.0 1574.7 3785.7

Jul-2018 10,919.1 4558.5 2079.0 1544.3 3809.9

Aug-2018 10,931.4 4568.5 2091.8 1556.4 3835.3

Sep-2018 10,980.5 4577.9 2073.6 1564.3 3844.9

Oct-2018 10,981.1 4612.0 2127.2 1562.0 3811.8

Nov-2018 11,020.9 4670.0 2164.0 1567.8 3812.7

Dec-2018 11,082.9 4537.7 2100.1 1550.5 3852.2

Jan-2019 11,116.0 4538.3 2097.4 1512.2 3864.3

Feb-2019 11,207.3 4585.4 2133.5 1570.7 3860.1

Mar-2019 11,244.6 4591.7 2156.5 1549.6 3912.4

Apr-2019 11,258.7 4549.6 2129.7 1576.1 3883.4

May-2019 11,225.7 4571.9 2125.2 1570.1 3910.0

R E T A I L T U R N O V E R B Y I N D U S T R Y S E C T O R ( $ M I L L I O N S )

Source: ABS


IndustrialWhile online trade is a challenge for retail property, the fortunes of industrial and logistics assets in Australia have been elevated by the rise of e-commerce, as well as technology changes and significant levels of government spending on infrastructure.

As we outlined in our October report, E-commerce as a proportion of total retail sales is relatively small in Australia relative to more established markets such as the U.S. but it is growing strongly, helped by the recent entrance to the market of international retailers such as Alibaba and the expansion of Amazon.

Consumer demand for fast delivery of goods is increasing the importance of properties within supply chains. As a result, strong demand from the transport, logistics and retail sectors has boosted the confidence of developers, leading to a pickup in development activity.

17 Knight Frank, Pushing the Button: Speculative Development on the Rise18 The Sydney Morning Herald, Amazon promises one-day shipping, but Australia may have to wait, April 26, 2019. This article can be accessed via the following

link: https://www.smh.com.au/business/companies/amazon-promises-one-day-shipping-as-it-reveals-its-biggest-profit-ever-20190425-p51h78.html19 The Guardian, Google’s world-first drone delivery wins approval in Canberra, April 9, 2019. This article can be accessed via the following link: https://www.

theguardian.com/australia-news/2019/apr/09/googles-world-first-drone-delivery-business-wins-approval-in-canberra

In a recent report titled “Pushing the Button on Eastern Seaboard Industrial Development”, Knight Frank says industrial development activity in Sydney and Melbourne is rising at an accelerated pace. It estimates that 422,000 square metres of speculative stock was completed across Sydney, Melbourne and Brisbane in 2018, which is widely viewed as a record for the sector. Knight Frank estimates that 2019 speculative volumes will far exceed 2018, with almost 560,000 square meters of projects underway or proposed to be completed. 17

Short leasing cycles have helped to boost developer confidence in Sydney and Melbourne, the report says. In Sydney, the average time on the market is one month, with the majority of speculative developments being leased before completion.

Knight Frank forecasts that ongoing growth in the online retail environment will continue to drive strong demand for warehouse and distribution facilities in Melbourne and Sydney, as international

online retailing giants become increasingly active in the market and look to reduce delivery times further.

Amazon, which launched its Prime service in Australia earlier this year, recently said it’s working to move its standard shipping times for subscribers from two days to one.18 Meanwhile, Google’s drone company, Wing, has been trialing drone delivery of products including food and drinks, medication and locally-made coffee and chocolate.19 Both developments suggest that improvements to supply chain efficiencies for the last-mile of delivery will remain a key focus for the logistics sector in the near term.

At Banner Asset Management, we consider all sectors of the Australian commercial property market, across asset classes and geographies. We are currently considering a number of funding opportunities in industrial property, among other sectors where key metrics adhere to our desired risk profile.

O N L I N E R E T A I L T U R N O V E R A S A % O F T O T A L R E T A I L T R A D E

Source: ABS

3.1%

3.3%

3.9%

5.6%

6.2%

May 2015

May 2016

May 2017

May 2018

May 2019


As we look toward the second half of the year, two key uncertainties that were facing the residential real estate market in Australia – the federal election and the report of the Banking Royal Commission – are behind us.

The Reserve Bank’s resumption of monetary policy easing, combined with tax cuts from the federal government, should help to underpin demand for property in the second half of the year and should encourage more buyers to return to the market.

With the office and industrial markets continuing to make strong gains, and yields on some assets tightening to

20 ASFA, Superannuation Statistics, May 201921 Credit Suisse Research Institute, Global Wealth Report 2018

record lows, some market watchers have begun to question how much longer yield compression can continue. However, the low level of yields in these markets needs to be considered within the broader interest rate environment.

With the Reserve Bank recommencing easing and other major central banks indicating policy will remain accommodative for the foreseeable future, bond yields have fallen dramatically over the past 12 months. While industrial and office yields have fallen, the spread to government bonds has widened significantly, increasing the relative appeal of the asset class to investors.

A strong rental environment with low vacancy rates, elevated infrastructure spending, continued employment growth and an expanding ecommerce sector also remains supportive of office and industrial yields staying lower for longer.

Over the long term, strong fundamentals combine to support the growth and stability of the Australian commercial real estate market, including steady migration-led population growth; a resilient economy; a $2.8 trillion pool of superannuation savings20; rising infrastructure spending; and high levels of per capita wealth21.

Outlook

Y I E L D S O M A U S T R A L I A N G O V E R N M E N T B O N D S

Source: IMF/Colliers1.3

8%

2.70

%

2.64

%

2.63

%

2.68

%

2.68

%

2.43

%

2.27

%

2.13

%

1.96%

1.86%

1.65%

2.59

%

$2.78 trillion S U P E R A N N U A T I O N A S S E T S

US$411,060 A U S T R A L I A ’ S M E D I A N W E A LT H P E R C A P I T A

Source: ASFA, Credit Suisse

Jun-

2018

Jul-2

018

Aug

-201

8

Sep-

2018

Oct

-201

8

Nov

-201

8

Dec

-201

8

Jan-

2019

Feb-

2019

Mar

-201

9

Apr

-201

9

May

-201

9

Jun-

2019


At Banner Asset Management, we provide an opportunity for investors to gain exposure to the real estate debt market through lending to established and proven developers for development projects, or for strategic acquisition of sites earmarked for development in the future. We also provide opportunities to invest in direct real estate through funds alongside other project partners.

We invest in developments with a proven use, evidenced either by presales or lease agreements, as well as strong fundamentals, including proximity to population growth.

In the residential space, our focus is on medium density development (apartments and townhouses) in the bigger population centers of Sydney,

Melbourne and South East Queensland, which provide greater liquidity and depth than other markets in Australia. This includes mixed-use residential projects that incorporate some uses such as office space or retail. We are looking to grow our investment in industrial, as growth in ecommerce drives demand for warehousing and logistics.

Our approach

D I S C L A I M E R

Investment in the Banner Wholesale Fixed Interest Income Fund ARSN160596770 is offered by Banner Asset Management Pty Ltd and is administered by Allied Funds Management Limited (AFSLicenceNo. 416441).None of the Asset Manager, the Responsible Entity, the Investment Committee Members or their associates or directors of any other person or entity guarantees the performance ors uccess of the Fund or any particular investment, the repayment of capital invested or any rate or return on investments in the Fund. We recommend that you consider your individual objectives, financial situation,needs and circumstances in managing any investment and that you consider consulting your financial advisor.

M E L B O U R N E

Level 21, 90 Collins Street, Melbourne VIC 3000 Telephone: +61 3 9929 6400 Email: [email protected]

S Y D N E Y

Suite 7.05, Level 7, 1 Margaret Street, Sydney NSW 2000 Telephone: +61 2 9262 2422 Email: [email protected]

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