This article is from the Australian Property Journal archive
AREITs were back in the positive with a 3.1% return amidst a tough year for the sector, as both industrial and alternative real estate assets continuing to demonstrate strength.
According to BDO’s 29th annual AREIT survey, the overall AREIT annual return of 3.1% was an improvement on FY22’s negative return of -15.4%.
Industrial AREITs brought in a 12.4% total return over the 12 months to 30 June 2023, up from -16.2% in FY22.
“The industrial category has reaped the rewards from the demand for manufacturing, warehousing and distribution that has not backed off since the pandemic, and REITs like Goodman Group and National Storage have been perfectly positioned to capitalise on that shift,” said Sebastian Stevens, AREIT specialist and corporate finance partner at BDO, Australia.
“However, we’re not going to see any material gains, particularly for the office and retail categories, until interest rates come down and we could be in for six to 12 more months of pain.”
At the same time diversified AREITs saw positive returns over the period, up 4.2% compared to -24.3% in FY22.
At the same time, the overall AREIT index was driven down by the office sector which returned a negative 13.9% result, a moderate improvement from -16.6% in FY22, with retail also returning a negative result at -0.8%, up from -1.6% in FY22.
“This is one of the tougher years for the sector, but AREIT management teams have manufactured a result by pulling on every lever, including renegotiating leases, managing their debt, or tweaking their portfolio,” added Stevens.
The survey also revealed areas of strength in the alternative real estate sub-sector, including real estate such as data centres, student accommodation, petrol stations, holiday parks, childcare centres, and BTR.
“With alternative REITs, the first mover advantage means they get the best properties and the best managers, leading to some strong results,” said Stevens.
In the upcoming financial year, AREITs will have to balance investor and consumer demand for companies that consciously consider their ESG impact, while still delivering positive returns and fund performance.
“There is a natural conflict because as much as investors want to invest in sustainable assets and REITs have every intention to be sustainable, they don’t have the capital to accommodate that at the moment without making their financial performance worse for investors,” added Stevens.
“It’s a tough balancing act with A-REITs under pressure to deliver short- to medium-term gains but sustainable investments may take time to mature and could have a longer horizon for returns.”
The Top 10 Performers in BDO’s A-REITs 2023 survey were:
- Goodman Group (ASX:GMG)
- Aspen Group Limited (ASX:APZ)
- Waypoint REIT (ASX:WPR)
- National Storage REIT (ASX:NSR)
- Charter Hall Group (ASX:CHC)
- Scentre Group (ASX: SCG)
- Stockland Corporation Limited (ASX:SGP)
- Vicinity Centres (ASX:VCX)
- The GPT Group (ASX:GPT)
- Charter Hall Long Wale REIT (ASX:CLW)
