Brought to you by Thinktank, the Monthly Market Focus is a monthly snapshot of how Thinktank sees the property markets across the country together with relevant research and economic news both global and domestic.
The Reserve Bank of Australia (RBA) last met in mid-June and with no meetings in July met again on 7, 8 August. The Cash Rate was left unchanged as it has been since November 2023 when it was increased by 0.25%. The quarterly Statement on Monetary Policy (SoMP) which was last released on 7 May was published on 6 August. Key recent statistical releases continue to be outside of previous RBA expectations and this was reflected in the adjustments to be seen in the last SoMP.
Very importantly, the latest CPI Indicator for the month of June released by the ABS on 31 July came in at 3.8% for the 12 months in line with the previously amended SoMP from last quarter. The ABS also released the June Retail figures which were up 0.5% from the previous month and 2.9% on a year earlier which was the best annual result in over a year.
Most recently, the ABS released the May Retail figures which were up 0.6% from the previous month and 1.7% on a year earlier which was an improvement on slow retail activity since the start of the New Year. Unemployment released on 13 June for May 2024 seasonally adjusted was up slightly to 4.0%. The projected rate for June 2024 in the SoMP was adjusted from 4.2% to 4.0%. Unemployment released on 18 July for June 2024 seasonally adjusted was up slightly to 4.1% just slightly higher than forecast.
Internationally similar issues continue to be confronted by Central Banks with increased forecasts of when interest rates may fall. The Federal Reserve Bank in the United States is most watched, and Chairman Jerome Powell and other FOMC Board members are now expected to begin easing US rates at their September meeting. The Bank of Canada has already delivered a 0.25% rate cut in the 5% Bank of Canada Rate and this was followed by the Bank of England with a cut in their Bank Rate on 1 August of the same 0.25% to 5.00%. Expectations of cuts to our Cash Rate have now been pushed out to next year in many cases and would be much preferred to an increase which in the view of most is not needed but was considered by the RBA Board at their recent meeting. Current US 10 year Government Bond yields are down to 3.94% and in Australia they are 4.13%. The AUD has traded down slightly against the USD at 0.6517.
The Westpac-MI Consumer Sentiment Index fell slightly by 1.1% in July to 82.7% and continued a two year slump in sentiment below 100. The overall negative sentiment continues to be attributed to consumers reaction to ongoing inflation concerns. The Westpac Leading Index however rose slightly to -0.13 in July reversing a slight fall in June. The concerns on interest rates and inflation appear to have been relieved somewhat by the latest CPI data commented on later in this report.
A similar slightly positive trend was also evident in the AiG Performance Indices for July with two of three up although all remain in negative territory. The AiG Australian Industry Index was up 5.0 points to -20.7 and the PMI (manufacturing) was up 7.0 to -19.5 and the PCI (construction) was unchanged -23.2. Notably however the AiG Industry Index has been in negative territory for the past 27 months.
CoreLogic dwelling prices for July continued their recovery but again with the exception of Melbourne and at very different paces.
National Housing values posted another good 0.5% gain for the month and up 1.7% for the quarter with only Melbourne being down -0.9% for the quarter and down 0.4% for the month. For the month houses in Sydney were up 0.2% and Melbourne houses were down 0.4%.
Unit prices were up 0.4% for the month in Sydney but down 0.2% in Melbourne. Adelaide, Perth and Brisbane all did very well once again this month leading the Capitals with all three up strongly in Houses and Units for both the month and the quarter with Perth out in front.
Momentum continues to be with the smaller Capital Cities but with some uncertainty about overall National Housing values after 17 months of increases.
We continue to reflect the improvement of Residential in almost all areas except Melbourne and we maintain our view that interest rates should remain on hold and will fall early next year.
Retail is showing some signs of recovery although volatile, but sales are finally rising. Industrial continues to be strong across the country although coming off their peak.
While Office is doing better in some Capitals, a real recovery continues to remain some time into the future with expected negative full-year results and commentary from major REITs and forecasts of further falls in Office valuations. This continues to be highlighted by individual sales of a few major commercial offices at significant discounts to their current carrying values. As noted in our News and Views that follows, the PCA OMR shows some improvement in the Office vacancy levels in the capitals across the country with no change in our own assessments of the sector.
Herron Todd White (HTW) in their July Commercial Insights covered the Retail sector across the country and were relatively flat to negative for most capitals in line with our own Ratings and Trends. Only Brisbane was shown as reflecting a shortage of rental property and entering a start of recovery.
The IMF is one of the most prominent global financial institutions and periodically produces publications on economic activity around the world. The recently released July 2024 issue entitled World Economic Outlook makes for interesting reading and allows us to put Australia’s performance in the context of what is happening elsewhere in our world particularly in comparison to the World Bank’s report which we discussed last month.
In it, the World Bank was mildly encouraging with global growth for 2024 projected to hold steady at 2.6% and then edging up to 2.7% next year.
The IMF while describing the global economy as in a “sticky spot” continues to be more optimistic forecasting growth of 3.2% for this year and up slightly to 3.3% in 2025. This is reflected in the graph below showing recent forecast changes.
While not shown in the graph, Australia was included in the growth updates with projections of GDP growth of 1.4% for 2024 and 2.0% for 2025. This compares to the RBA’s forecast of 2.1% for 2025. The recent volatility is reflected in the difference between the solid and dashed graphs for recent quarters while into next year the changes are not that great either for the US or Advanced Economies (AE) excluding the US. The IMF however does note the difference between the two with the US falling from a high level at the end of last year and other Advanced Economies improving their forecast performance.
Along with a focus on economic growth, the IMF like everyone else is also closely monitoring inflation and the impact it is having on central banks and the resulting more cautious approach to the pace of policy easing.
The graph opposite was included in their Global Financial Stability update. It compares the forecast Market Implied Policy Rates for the US and for Euro Areas (EA) for the rest of 2024 over the coming six months.
The Office Market Report (OMR) issued by the Property Council of Australia (PCA) provides a comprehensive analysis of the various markets across the country with a focus on demand for offices in both CBD and non-CBD locations and covering prime and secondary properties. The graphs below show the six month change for the combined result in capital cities with half showing a small improvement but with only two, Canberra and Brisbane recording a vacancy rate below 10%.
The commentary accompanying the data showed the overall office vacancy rate across Australia fell from 14.8% to 14.6% over the six months to July 2024. This figure is 4.2% points above the historical average. The report showed demand for office space was positive in both CBD and Non-CBD markets – the first time both demand markets were in positive territory since January 2023. It also revealed while vacancy in CBDs stayed stable, marginally increasing from 13.5% to 13.6% nationally, non-CBD areas saw a fall from 17.9% to 17.2%.
Brisbane’s vacancy decreased from 11.7% to 9.5%, the first time its vacancy rate has been under 10% since January 2013. Sydney’s CBD office vacancy rate fell from 12.2% to 11.6% and Adelaide witnessed a drop from 19.3% to 17.5%. However, three CBD markers saw an increase in vacancy. Melbourne’s vacancy rate rose from 16.6% to 18%, Canberra’s increased from 8.3% to 9.5%, and Perth’s lifted from 14.7% to 15.5%, all largely driven by new supply of quality office space.
The past year has been challenging due to inflation, rising interest rates and a changing economic environment, all of which have affected consumer sentiment and the business sector. However, despite these generally negative influences, we have continued to see solid commercial property lending activity across different property asset classes.
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