Moody’s Investors Service has given the Australian real estate investment trust (A-REIT) sector a 'stable' outlook off the back of its steady operating income growth.
The research company expects aggregate annual average net operating income growth to increase slightly, from 2 per cent to 2.5 per cent, in the coming 12-18 months, owing to a steady vacancy rate and contracted rent increases on existing leases.
“The pick up from the 2 per cent average income growth of the last 12 months is attributable to improved demand for office space in Sydney and, to a lesser extent, Melbourne,” the company added.
Retail real estate is likely to also see an increase in net operating income, and Moody’s said the segment was likely to grow to 2.5 per cent in the coming 12-18 months.
Moody’s also noted that operating income growth for the industrial segment was likely to remain at 1.5 per cent to 2.5 per cent in the same time period, and was likely to see the lowest growth of all the real estate segments, though noting strong demand in Sydney would push rental rates for the city up 2.5 to 3.5 per cent over the next two years.
“Demand for industrial space is likely to remain low to moderate in the other capital cities - high vacancy levels in Melbourne will mean minimal rental growth for new or renewed leases,” the company said.
"Low demand in Brisbane means that rents are under pressure and demand will remain soft over the next 12-18 months [and] vacancy levels will rise in Perth."