Boston, MA -- (SBWIRE) -- 02/24/2014 -- Recent years have seen Australia's commercial real estate sector emerge as an attractive destination for capital investment in light of the increased risks in the mining sector. However, in 2014, the country's worsening macroeconomic climate is expected to weigh on demand for commercial real estate space, with rising unemployment and a slowing consumer sector driving vacancy rates upwards in the office and retail sectors in particular. A lack of high-grade industrial real estate has seen demand for low quality assets grow as buyers look to acquire plots for residential development.

The Australia Real Estate report examines the commercial office, retail, industrial and construction segments in the context of a sector with muted growth prospects in the medium term. With a focus on the principal cities of Melbourne, Sydney, Brisbane and Perth, the report covers rental market performance in terms of rates and yields over the past 24 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the country's resources boom.

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Australian commercial real estate continues to be fairly balanced because, structurally, the industry functions in a way that restricts overdevelopment. It operates in an economy that, despite weak consumer sentiment and structural changes, is performing reasonably well. The economy and sector are underpinned by resources and demand from China, a present but declining threat of interest rate rises, low unemployment and a strong infrastructure sector. However, our short-term outlook for the economy is bearish, and the country will be affected by the slowdown in Chinese economic growth and its impact on Australian consumer and business sentiment.

Although rents in some regions are continuing to grow, rents could begin to fall should the economic climate deteriorate further over 2014.

Recent Developments

- The Australian real estate investment trust (REIT) market remains in strong shape going into 2014. In December 2013 Commonwealth Property Office Fund (CPA) upgraded its dividend forecast for H114, ending December 31 2013, to AUD0.035 (US$0.032), up from an earlier guidance of AUD0.0325 (US $0.0294). The company also raised its full-year distribution guidance by 3.1% to AUD0.0675 (US $0.0610) per share from AUD0.0655 (US$0.0592) per share. The upgrades have been attributed to additional leasing success and a number of favourable one-off outcomes for CPA.
- Transactional activity remains robust across the real estate sector. In January 2014 Dexus Property and its joint venture (JV) partner Canada Pension Plan Investment Board brokered an asset sale deal with rival GPT Group, paving the way for the end of a takeover battle for CPA.

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