By Chris Owens,Analyst, Atchison Consultants
Australian real estate investment trusts (AREITs), as represented by the S&P/ASX 200 AREIT Index, returned 4.9% in the month ending 31 December 2021. AREITs outperformed the S&P/ASX 200 return of 2.7% over the month.
Over the 12 months to December 2021, AREITs posted a strong total return of 26.1%, outperforming the S&P/ASX 200 return of 17.2%. Part of this return stems from “base effects” but the majority of it has arisen from distributions and price appreciation above February 2020 levels.
Sector Performance
Table 1 below shows the performance of AREITs for various periods ending 31 December 2021.
Over the 3 years and 5 years to the end of December, the sector produced total returns of 12.8% and 9.3% per annum respectively.
Sector returns were led by Industrial AREITs at 8.2%, followed by Diversified AREITs at 3.9%, Retail AREITs at 3.1% and Office AREITs with 2.1%.
Table 2 below shows the income performance of AREITs for various periods ending 31 December 2021.
Changes over time of the spread between the earnings yield of AREITs and the 10-year government bond yield are shown in Chart 1.
2021 Market Review
For the 12 months to 31 December 2021, the S&P/ASX 200 AREIT Index returned 26.1%. Industrial AREITs led sector returns with 41.9%, Diversified AREITs with 21.7%, Office AREITs with 21.6% and Retail AREITs with 15.2%. Industrial AREITs remain hot on the back of increasing demand for warehouse space, while the underperformance of Retail AREITs can be attributed to less consumer foot traffic caused by repeated COVID-19 lockdowns. Retail AREIT BWP Trust experienced a -2.5% return for the calendar year.
The underperformance of Office AREITs lies with the low office staff attendance rates brought on by lockdowns, with Melbourne and Sydney CBDs experiencing attendance rates of less than 10%. The future of work from home practices has also cast a shadow over the sectors’ future demand. The December quarter saw the end of Sydney and Melbourne lockdowns, however, office vacancy rates for these CBDs remain high at 12.5% and 15% respectively. However, Office AREIT Cromwell Property Group still managed to deliver a 7.9% return for the 12 months to December 2021.
The year saw a record for transactions. $46 billion worth of property deals took place, with industrial property accounting for $18 billion. One major transaction was the Blackstone purchase of a 49% stake in the Dexus Australian Logistics Trust valued at $2.1 billion.
Demand for industrial space doubled in 2021 as logistics firms and retailers invested in “last mile fulfilment” centres in response to increased consumer demand for household products. According to CBRE, national vacancy of industrial space hit a record low of 1.3%. Industrial space in West Melbourne saw rental growth of 13.4% for the year. In contrast to Cromwell, Goodman Group delivered a 41.9% return in the year to December 2021.
This momentum is likely to continue into 2022.