According to a new report from CBRE, the lower Australian dollar, combined with cheaper oil prices and continuing low interest rates will provide a positive boost to commercial property returns over the year ahead.
The Australian dollar is now 25-30% below its peak levels of early 2013 in a reflection of both lower commodity prices and expectations of narrowing interest rate and yield differentials between Australia and the rest of the world (particularly the US).
CBRE Head of Research, Australia, Stephen McNabb said this would be supportive of many property occupier segments in Australia – the extent being dependent upon the segment’s orientation to exports, import competition or import reliance.
“A lower AUD is generally beneficial to larger exporters and sellers of domestically produced products, but raises input costs and squeezes margins for importers,” Mr McNabb said.
“Incomes from many commodities, such as mining and agriculture, will increase as long as they aren’t offset by lower USD prices. Exporters of services are also set to benefit, especially accommodation and tourism, with around 20% of their demand coming from offshore. Education will also benefit but to a lesser extent.”
Other winners include “import competing” businesses in which Australia has scale or a specialisation, for instance as food and beverage, as well as domestic tourism, as fewer Australians travel overseas.
Mr McNabb said a sustained lower AUD would also reduce the profitability of moving jobs offshore to cheaper labour sources, including customer service and back office roles such as IT – weakening the case for offshoring job.
The losers will include manufacturers and retailers that utilise imported inputs.
“Around 40% of retail goods are imported, a large part of which are discretionary items such as household goods and clothing,” Mr McNabb said.
“This probably places international retailers in a better position due to their global sourcing scale, despite AUD income streams translating into a reduction in foreign currency income.”
The lower AUD was also a positive for property owners, Mr McNabb said, with commercial property tending to perform well after periods of currency decline.
“We expect this to be the case through 2015, with a lower dollar offering stimulus to the economy, in the same fashion as lower interest rates,” Mr McNabb said.
CBRE’s Viewpoint highlights that the office sector has the weakest correlation with the AUD, and that the retail sector has the strongest correlation, particularly for sectors that aligned to discretionary spending.
The industrial sector benefits through more traditional channels, particularly logistics, with a rise in export volumes and domestic demand supporting logistics volumes.