SQM Research reported that the S&P/ASX300 A-REIT Index delivered an annual return of 20.2 per cent for the year to June 2015 compared to 11.87 per cent for the prior corresponding period.
“The strong performance recorded in the A-REIT sector is bolstered by increases in capital values on the back of a high level of demand and weight of money from both on- and offshore investors,” said SQM Research.
Traditionally, SQM Research said returns from A-REITs have come from income. However, notable increases in capital values are now contributing to total return.
“In 2014, growth in Australian non-residential assets values represented 33 per cent of total return compared to 43 per cent for global real estate returns,” SQM Research said.
“Record-low interest rates have motivated investors to hunt for yield and some of these investors have increased their allocation to real estate assets as a consequence.”
SQM Research said that as a result of global macro level concerns, the year ahead for the sector remains uncertain.
“The year ahead is highly uncertain and it’s reasonable for investors to not expect the high double-digit returns from A-REIT assets witnessed in 2014.
“A-REIT assets are not immune to short-term market sentiment and in the current volatile environment macro risks can result in dispersion of returns,” SQM said.
The research house noted that increased market volatility will provide active managers with buying opportunities.
SQM Research concluded that the median sector rating for 2015 will come in at 4.0. This rating indicates that the sector is superior and suitable for inclusion in most APLs.
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