Wednesday, 20 May 2015

How's the other property market doing?

The latest global commercial property survey from the Royal Institution of Chartered Surveyors in the UK came out recently, and it said some interesting things about our commercial property market - the market that gets trampled in the reef fish rush to cover the residential property market. You can download the latest, March, report for yourself from the RICS site (head for the 'Knowledge' section), though there's a (free) registration process to get at it.

Here's the most dramatic result.


When you combine the demand from tenants with the demand from investors, we have the strongest commercial property market in the world right now. It's become fashionable to mock our 'rock star' status, and it's true we're probably past the peak growth rate of the current business cycle, but every now and then it's worth noting that by international standards we're still doing pretty well. For example - and I'm not knocking Australia, we need its economy to be a strong export market for us - you can clearly see what the current sub-par rate of growth in Oz has been doing to tenant demand there.

Another reaction might be that we're doing rather too well for financial stability comfort, especially as overexuberant commercial property markets tend to be near the front of the queue in financial crises. Here's another RICS chart.


It doesn't look to me that rent and capital gains expectations in our property market have got out of hand. They're fairly strong, but we're in the middle of the better performing pack, rather than at an extreme. That said, as the RICS commentary noted, "more respondents in the majority of markets now believe that commercial property in their locality can be categorised as either expensive or very expensive rather than cheap", a consequence of the global hunt for residual pockets of yield in a world of ultra-low interest rates on bank deposits and bonds.

An alternative way of getting to the same conclusion, that our commercial property market is on the expensive side but not at silly levels, is to compare the dividend yield on our listed property securities to those overseas. The yield on the FTSE EPRA/NAREIT Global Real Estate Index (which you can find here) is currently 3.27%: our yields haven't fallen so low. A representative selection: Kiwi Property 5.25%, Precinct Properties 5.92%, Property For Industry 5.77%.

I really like these RICS reports (I know, I've said it before). We don't have a lot of other info on what can be one of the more important moving parts in the cycle: they fill a real gap:

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