Returns from about 70 per cent of Australia's metropolitan property markets are expected to outperform this year, with Sydney office yields nearing a robust 7 per cent, according to DTZ Research's latest fair value report.
"It all comes back to the relatively high government bond yield rate, which then drives a relatively high yield for your investment," DTZ head of national research Dominic Brown said.
"That's the underpinning. In Hong Kong, the prime market yield is about 2.5 per cent for the office sector. For Sydney's office sector, the prime market yield is nearer 7 per cent."
DTZ tracks 15 markets across Australia, made up of office, retail and industrial markets in Brisbane, Sydney, Melbourne, Perth and the Gold Coast.
"Out of all of those, we've only named Melbourne retail as cold. Generally what we've seen in Melbourne on the retail side of things is prices have escalated over recent years, making them less attractive," Brown said.
"With regards to the other locations, they're either sitting at warm or hot. It's those locations that we think are relatively attractively priced."
The DTZ Fair Value Index gauges expected returns versus required returns, or the returns needed to make an investment more worthwhile than another investment.
If the difference varies by less than 5 per cent up or down, the market is considered warm, if the market is more than 5 per cent overpriced, it is cold, and if it is more than 5 per cent underpriced, it is hot.
Office markets in Brisbane, Sydney, Melbourne and Perth are hot, as are the industrial markets of Sydney and Melbourne and Brisbane's retail market. Warm markets are industrial property in Brisbane and Perth, as well as Sydney's retail property market.
Sydney and Melbourne were more mature office markets so they were generally considered less volatile, Brown said.
"What we've seen in Perth recently is a very strong contraction in vacancy rates, so if there were, for whatever reason, to be a slowdown in mining, that could obviously create problems for that market," he said.
The Gold Coast was emerging as an attractive market but remained risky for now, he said.
