Moody's suggest outlook for A-REITs is stable, but retail face challenges

Moody's Investors Service says that its outlook for the Australian real estate investment trust (A-REIT) industry is stable, except for the retail segment, which faces a challenging operating environment.

 

The growth in operating income will remain strong, and they expect aggregate comparable net operating income growth of 3% to 4% for their 16 rated A-REITs during the next 12-18 months

 

Moody's Investors Service expect the office segment will see the strongest income growth, followed by industrial and retail.

 

Low office vacancy rates in Sydney and Melbourne make these cities "a landlord's market."

 

Moody's forecast for operating income growth of 3%-4% will be driven by low vacancy rates and strong demand on the back of favourable economic conditions.

 

GPT Group, Mirvac Group and Dexus have the highest exposure in this segment and will likely record the highest growth over the next 12-18 months.

 

Strong demand underpins solid growth in the industrial segment, and Moody's expects operating income growth of about 3%, with Sydney being the strongest market.

 

Dexus, Goodman Group, Mirvac, Goodman Australia Industrial Partnership and Stockland Group will be the main beneficiaries according to Moody's analysis.

 

Moody's Investors Service stated the retail segment is facing structural challenges on sluggish consumption and online sales growth.

 

"Nevertheless, higher quality retail space remains resilient, and Moody's expects operating income growth of 2.0%-2.5%," it noted.

 

 

"Well-located shopping centers that attract a deep pool of potential tenants and are underpinned by non-discretionary spending, or that are destination hubs, will continue to perform well," they added.

 

Scentre Group, GPT, Mirvac and Vicinity Centres will benefit from these factors, while other centers, with a high level of discretionary spending exposure, will underperform, based on their latest data.