The performance of the sector in 2023, amidst an inflation and cash rate uptrend, was volatile, with a clear, directly inverse relationship between listed commercial property values and the 10-year bond yield. Notably, the index experienced a significant leap (gaining over 20%) in the last two months of the year, as bond yields fell to end the year approximately where they started.
Across the Real Estate sector, there was considerable variation in performance across different sub-industries. Generally, REITs focused on Office and Retail properties were hit hardest, including those categorised as 'Diversified' but with significant investments in these asset types. On the other hand, Industrial properties, though not completely immune to value drops, fared relatively better. Their resilience can be attributed to a combination of high demand and increasing material costs amid low supply levels.
The question we address in our 2024 Property Outlook, is how to best structure a portfolio of real estate assets across Industrial, Retail, Office and Residential to benefit from the uncertainty in the market and the macroeconomic outlook.