Office sector property funds recorded a 1.5 per cent downturn in the last quarter of 2022 as rising inflation and interest rates bit into wholesale property funds returns.
The MSCI Real Assets wholesale monthly property fund index slipped 0.1 per cent in the fourth quarter, driven largely by a 2.4 per cent drop in capital growth in the office funds.
Industrial funds, however, were a stand-out performer, recording a total return of 1.2 per cent, followed by 1.1 per cent in the retail property funds.
MSCI head of Pacific real assets research Benjamin Martin-Henry said Australia was now following global markets to record falls in capital values, but the wholesale property funds still outperformed equities, bonds, and REITs.
“While it was a disappointing end to the year, it wouldn’t have come as much of a surprise to investors as the fourth quarter was likely to see valuations revised down given the economic environment,” Martin-Henry said.
“It’s true that the results indicate that the property market is slowing down, but if looked at in context, unlisted property has performed extremely well.
“Lat year was a rough year for many other asset classes; unlisted property posting a positive return is testament to the sector’s strength.”
The industrial wholesale property funds posted a total return of 9.9 per cent for 2022 and a three-year annualised total return of 17.1 per cent.
The retail funds performed better than their office counterparts, recording capital growth of 2.1 per cent and an income return of 4.9 per cent, culminating in a total return of 7 per cent for the year.
Office funds recorded a total return of 4.6 per cent.
According to MSCI Real Assets data, equities recorded a 1.7 per cent return for the year, Bonds dipped 16.8 per cent, and REITs dropped 20.4 per cent.
AMP chief economist Shane Oliver said 2022 was dominated by high inflation, rising interest rates, fears of a recession, and the war in Ukraine. Oliver says this cocktail of macroeconomic events impacted bonds and shares.
“After very strong returns in 2021 thanks to reopening from Covid restrictions and stimulatory fiscal and monetary policies, 2022 was a rough year reflecting high inflation, a surge in interest rates and bond yields, geopolitical issues (notably the invasions of Ukraine) and recession worries,” Oliver said.
“This saw average balanced growth super funds lose around 5 per cent (or around 12 per cent after inflation), as both shares and bonds lost value, after returning 14 per cent in 2021. Over the last five years, they have returned around 5.5 per cent per annum with a pattern of successive strong followed by weak years, since 2017.”
Oliver said unlisted commercial property and infrastructure were expected to see slower returns, reflecting the lagged impact of weaker share markets and higher bond yields on valuations.