Casey Robinson, Research Director of m3property, an Australian property valuation and consulting firm gives her view on the 2019 outlook for Sydney and Melbourne property market.
SYDNEY
The outlook for the Sydney Residential market in 2019 is for further slowing in the first half of the year. While supply is decreasing and population increasing in Sydney, demand has decreased significantly with pre-sales, auction clearance rates and prices all falling as a result. Political uncertainty, with a NSW and Federal election in 2019 and a constrained funding environment as a result of actions taken following the finalisation of the financial services Royal Commission in February 2019 are also expected to keep the residential market flat over the year.
The Sydney office sector is expected to see a further reduction in vacancy over 2019 as withdrawals to stock continue to exceed supply and demand remains positive, albeit moderate due to the lack of available space in many markets. This is expected to continue to drive solid rental growth over the year. Yields are expected to be stable over 2019 due to the already low yields currently being recorded and forecast rising bond rates over the year.
The Sydney industrial market is expected to continue to benefit from infrastructure improvements in the State and retailers looking for ‘last mile’ distribution space. Vacancy is expected to remain low and rents are forecast to rise, albeit at a slower rate than over 2018. Land values are expected to continue to benefit from a lack of available land, particularly in inner locations within the metropolitan area. Yield tightening is expected to slow due to the current record low yields being recorded at current across all Sydney submarkets and forecast rising bond rates over 2019.
“Sydney residential market is expected to be flat while Melbourne’s prices will likely stabilise in 2019.”
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MELBOURNE
A historically low interest rate environment, an improving Victorian economy and solid population growth will continue to underpin Melbourne’s residential property market, although at more stable levels following recent downturns in the residential market. Measures implemented by the State Government including removing off the plan stamp duty savings for investors resulted in a slowdown in sales rates and decline in prices after strong growth experienced over the last two to three years. This together with a credit tightening is expected to see prices stabilise over the next 12 months.
According to m3property Research, Melbourne CBD office vacancy rate is forecast to decline over the next 18 months before it peaks by the end of 2020 at 5.2% which is lower than the historic 10- year average of 6.4%. We expect net face rents to continue to increase over the next 18 months before the growth rate starts to decline during 2020 and 2021. Investment demand is expected to remain strong over the short term. We believe that high demand and limited stock available for investment will continue to drive yield compression.
The Melbourne industrial market is expected to remain stable over 2019, although the rate of yield compression may reduce. Within all regions there has been a steady reduction in the supply of industrial zoned land, we therefore expect an increase in industrial land values over the next twelve months. With strong investment demand from both local and offshore purchasers for prime and passive industrial investments, coupled with a limit of these properties offered for sale, we expect further yield compression over the next 12 months for prime and passive investments with a flow on yield compression for secondary investments.
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