The growth outlook for Australian real estate investment trusts (A-REITs) has been deemed ‘stable’ by Moody’s Investors Service, driven by demand for office space and “strong industrial dynamics”.
Credit ratings and research provider Moody’s Investors Service has projected aggregate comparable net operating income growth to “increase slightly” to 3 per cent over the next 12-18 months, up from 2.6 per cent over the past year.
“This growth will be broadly in line with the past 12 months, driven by contracted rent increases on existing leases and broadly steady vacancy rates,” according to Moodys’ latest Outlook report.
“The small pick up from the 2.6 per cent income growth of the last 12 months is attributable to good demand for office space in Sydney and Melbourne, and strong industrial dynamics for Sydney.”
The retail segment would be underpinned by “high occupancy” and “solid renewals”, while the industrial segment would enjoy the “strongest growth”, driven by record-low vacancy rates in Sydney.
“Rated A-REITs' net operating income from the retail segment will likely increase 2.5 to 3.0 per cent during the coming 12-18 months, driven by steady, high occupancy rates, which range from between 98 per cent and 100 per cent for our rated REITs,” the report said.
“Net operating income growth for the industrial segment will be in line with other sectors – at 2.75 per cent to 3.25 per cent – over the next 12-18 months, driven by continued demand for logistic and distribution centre space, particularly in Sydney,” it said.
If the aggregate average net comparable operating income for rated A-REITs fell by 2 per cent over the next year, the outlook could turn negative, while expected operating income growth of 4 per cent could change the outlook to positive.