When the growth outlook becomes uncertain, one thing becomes clear, income matters more.
Looking back over 40 years of Australian commercial property, income has been the consistent driver of returns, averaging around 7 per cent and remaining positive every single year. In contrast, capital growth has been far more volatile, heavily influenced by interest rates and market sentiment.
For much of the past decade, falling bond yields did a lot of the heavy lifting, compressing cap rates and inflating asset values. That tailwind has now faded.
Australian Commercial Property Market Annual Income Returns and Capital Growth
Notes: 1. Westbridge; CBRE; JLL; Colliers; MSCI Real Assets published charts data, digitised and approximated.
Today’s environment is more complex; sticky inflation, higher interest rates, geopolitical uncertainty, and policy changes are all clouding the capital growth outlook. However, income is far less dependent on these variables. Future property investment returns are likely to lean more heavily on income and genuine rental growth rather than valuation uplift.
It’s important to note that not all income is created equal. We need to look beyond headline yield and focus on the durability of that income.
Income driven by sector and asset selection, will be critical.
