Market Insights


State of the market 2019 and outlook for 2020

Mark Wizel, Director Investments CBRE

The year 2019 was marked by the continued transition away from the record property investment sales witnessed in recent years to one reflecting a more cautious investment market, both from buyer and vendor perspectives, and of softening yields.  

Factors such as low wages growth,  relatively low economic confidence, low affordability of housing, and of course online competition, are all weighing on the retail sector and will continue to impact the market into the new year.

With retail spending down, and even the Federal Government’s tax handout having no noticeable impact, it is clear that consumers are not in a spending frame of mind.  In the absence of any significant economic stimulus it is hard to see the situation changing a great deal over the next 12 months.

Where growth is likely to come from is off-shore. I have no doubt that a significant amount of money will flow into Australian property from Asia, and Hong Kong, and to a lesser degree Singapore, will be a prominent player. 

Domestic investors will also be looking for somewhere to park their cash. Should equity and bond markets continue to offer volatility and low yields, then property becomes the investment of choice. We are already seeing that and we will see more of it in 2020.

Another factor which may come into play is the coming US Presidential Election in November 2020. 

The US President has recently back tracked a little on his hard line with China trade, and in an election year may go further towards ending the so-called trade war which could provide a welcome degree of equities market stability and broader economic confidence.  

What we have seen in the retail sector in 2019 is a trend towards investment in properties that are more heavily weighted towards non-discretionary-spend tenancy profiles and that has resulted in strong demand for standalone supermarkets and neighbourhood centres dominated by strong supermarket anchor tenants.

Buyers have also had an eye to the future in the importance which has been placed on underlying land value, location, zoning and road access aspects, which may provide potential development upside down the track.

Of course this type of asset has long been a favourite of investors in tougher economic times as a defensive play and one which is more likely to provide acceptable returns compared to alternative asset sectors and classes.  

While yields for standalone supermarkets have softened over 2019 they have come off a very strong retail market highlighted by the sale of Coles Clayton in early 2018 on a record 2.58 per cent yield. This year we have seen yields hover around 5.3 per cent following an average closer to 4.5 per cent over 2018 but one of the most recent sales – Coles Mentone at a record 3.4 per cent yield for 2019 – suggests demand for this product remains very strong.        

Neighbourhood centre sales in Victoria have been the strongest in four years and again the key driver of those sales has been the strong weighting towards non-discretionary spend tenancies. Of the six sales transacted in 2019, the anchor tenants, including Coles, Aldi and Woolworths, contributed an average of more than 60 per cent of the total income or GLA of the centre.

Yields have softened to around 6 per cent compared to the sub 6 per cent yields – 5.5 per cent over 2018 – we have seen over previous years but I don’t expect any further softening for an asset class that has weathered the retail headwinds quite well.  

Apartment market

The inner city apartment market has suffered from the negatives of affordability issues, some oversupply, and more recently cladding and construction  issues all of which have clearly had a severe impact on confidence in the sector driving down demand and ultimately sales and values.

I have no doubt that market will recover in the not too distant future.  The population is growing and people have to live somewhere. There has already been a shift in the residential sector generally and the smaller boutique apartment market continues to find buyers. 

With CBRE’s Melbourne Asian Services Desk reporting a recent upsurge in enquiry for apartments and apartment sites, we are also anticipating a higher flow of off-shore capital into Melbourne’s so-called `safe haven’ market.

Office market

There is no doubt that the office sector has enjoyed a relatively strong market in recent times with record low office vacancy in Melbourne and strong rental and capital growth. Continued demand will drive growth in face rents which in some cases increased by between 10 to 20 per cent over the last 12 months.

White collar employment growth of 6.4 per cent has been the driver for the Melbourne market which topped Australia for net effective rental growth in Q2, 2019, recording a 3.5 per cent rise off the back of increased tenant demand with further increases expected as prime office space becomes increasingly scarce.

We also expect to see a continuation of the increased demand for suburban office property as landlords hold tight to their strongly performing CBD assets.    

Development sites 

Developers are gearing up for an early return to apartment building responding well to the sale of numerous sites across Melbourne and nationally over the last quarter of the year. The sites, earmarked for a mix of residential and retail development, include 25 former Caltex service station/convenience store outlets which were purchased by a number of developers including Oliver Hume and Woolworths.

We expect an equally positive response from the market in the new year with the marketing of a further 25 Caltex sites.   

Savvy developers are pre-empting what will be an inevitable undersupply of apartments, particularly across the suburbs. Their case is strengthened by the fact that investors in the developer’s end product have access to the cheapest debt in our history, with rental growth, rising yields and depreciation benefits arguably providing a better all-round return than most other asset classes today.


What we have seen over 2019 is a more conservative approach from investors, especially from institutional investors who have been in the business of off-loading non-core retail assets. In the sub $100 million sector these assets have been welcomed in a tight market for quality product and that has been reflected in the high level of enquiry and relatively tight yields given the negativity around the retail market generally.   

We have seen a flight to the safety of bricks and mortar and particularly those assets which are regarded as defensive in a somewhat troubled economic environment.

What we are going to see in 2020 is a market perhaps more flush with cash and more ready to enter property investment as world trade and economic performance continues to negatively impact equity and bond market yields.

The smart money will be on standalone supermarkets in the best locations, stores such as Bunnings, well located development sites, and CBD and suburban office assets, and, while it’s not my area, the evidence suggests industrial property  will continue to attract e-commerce driven investment.   

Expect to see more off-market deals as vendors hold on to their assets, some more positive news around retail as the sector deals more creatively with the challenges of technological change, and a greater focus on growth sectors such as aged care. 

Recent standalone supermarket sales: 

Source CBRE
*Kyneton Woolworths sale included four separate shops – together known as Kyneton Shopping Centre

Neighborhood centre sales 2019

Source CBRE

Neighbourhood centre sales 2016-2019

Source: CBRE
*To November 2019
*Does not include Newcomb Central

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