Fixed Income

A debt investor’s perspective on the Australian listed property sector


Helen Mason

Helen Mason

Credit Analyst, Fixed Income

Over the past few reporting periods we have witnessed a steady decline in earnings growth for property companies across the sector even though the challenges in each specific sector (retail, office, industrial and residential) vary.

In this paper we aim to outline the main reasons why we remain positive on the sector from a debt perspective and despite earnings being impeded by cyclical and structural headwinds we maintain that for credit investors, Australian property trusts remain a sound investment proposition.

There is no doubt that over the past couple of years the property sector has been challenged by macroeconomic factors which have materially damaged performance.  For the retail REITs, the high Australian dollar, rising utility prices, the stubbornly high savings rate and general economic uncertainty have deterred shoppers.  For office landlords, changes in work patterns and reductions in the white-collar workforce have impacted demand for space combined with concerns regarding excess supply coming through in the next few years.  Residential development has been challenged by affordability which has driven potential buyers away.

The REITs have responded to changes in demand in a number of ways, such as re-mixing shopping centres to leverage entertainment and leisure offerings, whilst office towers have become more in tune with modern working patterns, but arguably these changes have not been sufficient to combat the lingering headwinds. 

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