The uncertain economic outlook coupled with pressures from rising inflation and interest rates took their toll on Australian core wholesale property funds in the first quarter of 2023. 

According to MSCI Real Assets, the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index showed overall total return was marginally under 0.0% in Q1’23.  

Notably, for the first time since March 2016, the industrial sector recorded negative capital growth on a quarterly basis at -0.4%.  

Office funds remained the main antagonists as they recorded a -1.2% capital growth, although this was a slight improvement from the -1.5% recorded in Q4’22.  

Retail funds, meanwhile, recorded capital growth of – 0.8% for the quarter.  

“The market has entered a period of correction as for the first time since 2009. All sectors recorded declining capital growth for the quarter,” said Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI. 

“Each sector has their own nuances that they are grappling with, but the overarching economic issues – namely cost of debt and inflation – are impacting everyone.”  

Rolling Annual Capital Growth

Despite the recent slowdown, overall annual performance remained in positive territory.  

On a rolling 12-month basis, the Index recorded a total return of 4.2% in Q1’23, compared to the 6.4% recorded in Q4’22, but well below the 12.5% recorded 12 months ago.  

The annual results for the Index comprised an income return of 4.1% and capital growth of 0.1%.  

As expected, industrial funds continued to be the stand-out performers, although the total return of 8.7% is a far cry from the 25% recorded 12 months ago.  

Retail funds performed better than their office counterparts, recording capital growth of 0.3% and an income return of 4.8%, culminating in a total return of 5.1% for the year.  

Office funds recorded a total return of 2.3%, comprising negative capital growth of -1.5% and an income return of 3.9%.