Australian real estate investment trusts (A-REITs) posted negative returns for the second quarter of 2017, which was at odds with the positive performance by global REITs, according to Principal Global Real Estate Securities.
The company’s most recent quarterly update found A-REITs returned -3 per cent while global property stocks delivered 3 per cent off the back of good economic conditions.
“Global REIT markets posted positive returns, ending the quarter 3 per cent up (in US dollars), and buoyed by ‘Goldilocks-like’ economic conditions that remained suggestive of a moderate US Federal Reserve rate-hike trajectory,” the company said.
Locally, however, out-of-cycle mortgage rate hikes saw a stalling in the A-REIT market while bankruptcy concerns saw investor sentiment towards retail names remain weak, Principal said.
“In a continuation of the trend from the first quarter of the year, A-REITs with discretionary retail exposure were amongst the worst performers in the second quarter,” said Principal Global Investors portfolio manager Janine Yoong.
“Investors remain cautious about the potential impact of market disruptors such as Amazon, and the potential for retailer bankruptcies.”
Demand for commercial real-estate remains strong in contrast, Ms Yoong said, “with direct market transactions showing a further tightening of market cap rates, and A-REITs preliminary June quarter valuations showing continued cap-rate compression”.