Quarterly Property Report

DECEMBER 2020 QUARTERLY PROPERTY REPORT | DECEMBER 2020 2

Introduction

Welcome to the latest Industrial property also upward trajectory through edition of Banner Asset remains well sought after 2021, however, as Reserve Management’s Quarterly the pandemic accelerated Bank of Australia Governor Property Report. As we ecommerce penetration.4 Philip Lowe has warned, the head into the new year, the In the office market, while recovery is likely to be bumpy economy is recovering faster many employees are still and uneven.7 This will provide than expected1 from the working from home, the rise both opportunities and COVID-19 related recession in rental incentives we’ve seen challenges for investors. In our and residential property in Sydney and Melbourne in Spotlight section this quarter, prices have ended 2020 in previous quarters has begun we analyse the outlook for positive territory2 – contrary to to slow.5 6 specific sectors of Australia’s forecasts early last year that Providing the virus remains property market in 2021. the market could experience contained, the economy is We hope you find these 3 significant falls. expected to continue its insights useful.

1 RBA Governor Philip Lowe, Opening statement to the House of Representatives Standing Committee on Economics, 2 December 2020 https://www.rba.gov. au/speeches/2020/sp-gov-2020-12-02.html 2 CoreLogic, Monthly Chart Pack, December 2020 https://www.corelogic.com.au/reports/housing-market-update 3 “CBA Dials Back Price Fall Prediction”, The Urban Developer, 9 September 2020 https://theurbandeveloper.com/articles/cba-dials-back-price-fall-prediction 4 JLL Industrial Market Overview, Q3 2020 https://www.jll.com.au/en/trends-and-insights/research/australia-national-industrial-market-overview-3q20 5 Cushman & Wakefield, Marketbeat, Sydney CBD Office Q4 2020 https://www.cushmanwakefield.com/en/australia/insights/sydney-marketbeat 6 Cushman & Wakefield, Marketbeat, Melbourne CBD, Office Q4 2020 https://www.cushmanwakefield.com/en/australia/insights/melbourne-marketbeat 7 RBA Governor Philip Lowe, Opening statement to the House of Representatives Standing Committee on Economics, 2 December 2020 https://www.rba.gov. au/speeches/2020/sp-gov-2020-12-02.html QUARTERLY PROPERTY REPORT | DECEMBER 2020 3

Economic update

GDP rebounded by 3.3% The unemployment rate fell The RBA cut its target cash Australia’s population grew in Q3, after falling by 7.0% to 6.6% in December from rate by 15 basis points in by 1.3% in the year through in Q2. 6.8% in November. November to a record low June, slowing from a pace of 0.1%. of 1.4% in the year through March.

Source: Australian Bureau of Statistics, Reserve Bank of Australia

RECOVERY WELL UNDERWAY

Australia has rebounded from the trading restrictions across most states COVID-19 related recession, with gross and territories in the September domestic product rising by a greater- quarter. The exception was Victoria, than-expected 3.3% in the September which implemented Stage 4 lockdown quarter, following a record fall of 7.0% in restrictions in early August due to a the June quarter. Household spending spike in cases. Over the year, GDP was surged as reduced COVID-19 case down 3.8%.8 numbers resulted in an easing of social distancing measures and

8 ABS, Australian National Accounts: National Income, Expenditure and Product, September 2020 https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts- national-income-expenditure-and-product/latest-release QUARTERLY PROPERTY REPORT | DECEMBER 2020 4

QUARTERLY GDP REBOUNDS

Source: ABS

3

2

1

0

-1

-2

-3

% change in on quarter GDP -4

-5

-6

-7

Jun-2011Sep-2011Dec-2011 Jun-2013 Jun-2015Sep-2015 Jun-2017 Jun-2018 Dec-2010Mar-2011 Jun-2012Sep-2012Dec-2012Mar-2013 Sep-2013Dec-2013 Jun-2014Sep-2014 Dec-2015 Jun-2016Sep-2016 Sep-2017Dec-2017 Sep-2018 Jun-2019Sep-2019Dec-2019 Jun-2020 Mar-2012 Mar-2014 Dec-2014Mar-2015 Mar-2016 Dec-2016Mar-2017 Mar-2018 Dec-2018Mar-2019 Mar-2020 Sep-2020

ANNUAL GDP GROWTH REMAINS NEGATIVE

Source: ABS

4

2

0 %

-2

-4

-6

Sep 2018 Sep 2019 Dec 2018 Dec 2019 Sep 2020 June 2018 June 2019 June 2020 March 2018 March 2019 March 2020 QUARTERLY PROPERTY REPORT | DECEMBER 2020 5

Employment improves further and socialize more freely.9 Clusters of the virus in parts of Sydney in as virus is contained December were more quickly contained. More recent data shows employment As of 22 January, Australia had just 135 10 improving after Victoria began to lift active cases of COVID-19 , ahead of a 11 restrictions in late October following planned vaccine rollout in February. 100 days of lockdown. The national Victoria had reached 18 straight days unemployment rate fell to 6.6% in without community transmission, December from 7.0% in October as Queensland reached 12 days, and NSW 12 Victorian bars, cafes and restaurants had seven days virus free. reopened and people were able to travel

UNEMPLOYMENT RATE FALLS

Source: ABS 7.5% 7.1% 7.0% 6.8% 6.6% 6.4% 5.2% 5.3% 5.3% 5.2% 5.1% 5.0% 5.0%

Jan 2019 Dec 2018 Feb 2019 July 2019 Oct 2019 Jan 2020 May 2019 Aug 2019 Sept 2019 Nov 2019 Dec 2019 Feb 2020 July 2020 Aug 2020 Sep 2020 Oct 2020 Nov 2020 Dec 2020 June 2019 May 2020 June 2020 April 2019 April 2020 March 2019 March 2020

9 Australian Bureau of Statistics, Labour Force Australia, December 2020 https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour- force-australia/dec-2020 10 Australian Government Department of Health, Coronavirus (COVID-19) current situation and case numbers https://www.health.gov.au/news/health-alerts/ novel-coronavirus-2019-ncov-health-alert/coronavirus-covid-19-current-situation-and-case-numbers 11 Stephanie Dalzell, “Coronavirus vaccine rollout on schedule in Australia despit Pfizer shortages overeas, Treasurer says”, ABC News https://www.abc.net.au/ news/2021-01-24/covid-19-vaccine-shortages-overseas-unilkely-to-affect-australia/13087002 12 Roy Ward and David Escourt, “As it happened: NSW to crack down on large gatherings over the long weekend; WA considers easing restrictions on visitors from Victoria” The Sydney Morning Herald https://www.smh.com.au/national/coronavirus-updates-live-uk-covid-19-strain-found-in-three-australian-open- cases-virus-traces-found-in-sydney-sewage-20210124-p56we8.html QUARTERLY PROPERTY REPORT | DECEMBER 2020 6

RBA cuts rates to developments, he said the RBA was reached the level of output recorded expecting GDP growth in the December at the end of 2019. He added that the support recovery quarter to be “solidly positive”, followed unemployment rate would likely still be In his opening statement to the House of by growth of 5% in 2021 and 4% in 2022. above 6% in two years' time, keeping Representatives Standing Committee on However, he cautioned that the recovery wage and price pressures subdued. To Economics in December, Reserve Bank of would be uneven, bumpy and drawn out.13 support the recovery, the RBA announced a major policy package in November, Australia Governor Philip Lowe said the Still, he noted that the Reserve Bank including cutting the central bank’s cash economy was performing better than view was that while some parts of the rate target to a record low of 0.1%, and expected. He noted that retail spending economy were doing quite well, others introducing a quantitative bond purchase had increased; business and consumer were in considerable difficulty. And even program, under which the RBA would buy confidence had lifted; and housing with the overall economy now growing $100 billion of government bonds over the markets had generally proved resilient, solidly, it would not be until the end of next six months.14 since he last appeared before the 2021 that the economy again committee in August. Given these

13 RBA Governor Philip Lowe, Opening statement to the House of Representatives Standing Committee on Economics, 2 December 2020 https://www.rba.gov. au/speeches/2020/sp-gov-2020-12-02.html 14 RBA Governor Philip Lowe, Opening statement to the House of Representatives Standing Committee on Economics, 2 December 2020 https://www.rba.gov. au/speeches/2020/sp-gov-2020-12-02.html QUARTERLY PROPERTY REPORT | DECEMBER 2020 7

Residential

Residential markets continued to recover arrangements made it easier for people in the three months through December, to live outside the big cities where major with national dwelling values rising by employees are normally based. Over the 2.3% in the quarter, according to data year, dwelling prices rose by 3.0%, far from CoreLogic. Regional markets led from the steep value declines forecast at the way higher, with values rising by the onset of the COVID-19 pandemic.15 4.0%, compared to a 1.8% rise for capital city markets, as working-from-home

15 CoreLogic, Monthly Chart Pack, January 2021 https://www.corelogic.com.au/reports/housing- market-update QUARTERLY PROPERTY REPORT | DECEMBER 2020 8

DECEMBER MARKET SNAPSHOT

Source: CoreLogic, SQM Research

NATIONAL SYDNEY MELBOURNE BRISBANE

CAPITAL CITY DWELLING DWELLING DWELLING DWELLING PRICES PRICES PRICES PRICES +1.8% +1.3% +1.5% +2.1% (ON QUARTER) (ON QUARTER) (ON QUARTER) (ON QUARTER) +2.0% +2.7% -1.3% +3.6% (ON YEAR) (ON YEAR) (ON YEAR) (ON YEAR) +4.7% -3.9% -4.1% CAPITAL CITY FROM JULY 2017 FROM MARCH CURRENTLY AT SALES VOLUMES RECORD HIGH RECORD HIGH RECORD HIGH

...... +0.7% -1.4% -2.9% +1.8% CAPITAL CITY RENTS R E N T S R E N T S RENTS (ON YEAR) (ON YEAR) (ON YEAR) (ON YEAR)

2.2% 3.6% 4.7% 1.8% V A C A N C Y V A C A N C Y VACANCY VACANCY (UP FROM 2.1% (UP FROM 3.5% (UP FROM 4.4% (STEADY WITH IN NOVEMBER) IN NOVEMBER) IN NOVEMBER) NOVEMBER) QUARTERLY PROPERTY REPORT | DECEMBER 2020 9

Whatever happened The market has been by supported by Mortgage payment deferrals provided ultra-low interest rates and measures by the major banks also acted as a to the 2020 house taken by government and regulators temporary support to the market by price crash? to help the economy recover from the minimising forced selling. Data on loan downturn quicker. During 2020, the deferrals from the Australian Prudential At the onset of the pandemic, some Reserve Bank of Australia reduced the Regulation Authority shows borrowers forecasters were suggesting property official cash rate by 65 basis points to are becoming less dependent on these values could fall by as much as 10%16, 0.1%, leading to record low mortgage policies. As jobs and incomes slowly with worst-case scenarios suggesting rates. Further support for the economy recover, the portion of housing loans prices could fall as much as a third.17 came from tight controls on virus deferred has come down from a peak of While Australia has experienced outbreaks in most states and territories, 11% in May, to 2.8% in November.19 its first recession in more than 28 and billions of dollars of federal years, Australian property prices government interventions, including the fell by just 1.7% between March and JobKeeper wage subsidy, the $25,000 October, before returning to a positive Homebuilder grant, and the JobSeeker trajectory.18 payment for those out of work.

RBA CASH RATE TARGET DEFERRED LOANS AS A (2020) PROPORTION OF OVERALL

Source: RBA HOME LOANS (2020)

Source: APRA 0.75 11% 11% 9.0% 9.0% 7.4% 0.25 3.9% 0.25 2.8% 0.10

Jul Jun Sep Oct 8 Jul May Aug Nov 5 Feb 3 Jun 8 Apr 5 Aug 2 Sep 7 Oct 2 Dec 4 MAr 6 May 4 Nov 20 Mar

16 “CBA Dials Back Price Fall Prediction”, The Urban Developer, 9 September 2020 https://theurbandeveloper.com/articles/cba-dials-back-price-fall-prediction 17 Michael Janda, “CBA warns Australia risks 32% house price crash in a ‘prolonged downturn’, flags $1.5 billion coronavirus-hit to bank”, ABC News https://www. abc.net.au/news/2020-05-13/coronavirus-commonwealth-bank-house-prices-economy-unemployment/12241338 18 Eliza Owen, “Why didn’t the Australian housing market crash?”, CoreLogic https://www.corelogic.com.au/news/why-didnt-australian-housing-market-crash 19 APRA, Temporary loan repayment deferrals due to COVID-19, November 2020 https://www.apra.gov.au/temporary-loan-repayment-deferrals-due-to-covid- 19-november-2020 QUARTERLY PROPERTY REPORT | DECEMBER 2020 10

Another factor insulating the CHANGE IN WEEKLY PAYROLL JOBS BETWEEN housing market may be the specific MARCH 2020 AND NOV 2020 nature of the economic downturn. ABS payrolls data shows job losses Source: ABS have been severe across food and accommodation, and arts and 20 recreation. However, according Accommodation and food services to CoreLogic, people working in -12.8% these industries are less likely to have mortgage debt. While the Information media and telecommunications job losses in these industries likely -11.6% contributed to significant pockets of Arts and recreational services rental decline, many of the investors -9.0% servicing the debt would have been able to hold onto the asset while it Transport, postal and warehousing was temporarily vacant.21 -5.0%

Construction -4.9%

20 ABS, Weekly Payroll Jobs and Wages in Rental, hiring and real estate services Australia, Week ending 28 November -4.9% 2020 https://www.abs.gov.au/statistics/ labour/earnings-and-work-hours/ Forestry, agriculture and fishing weekly-payroll-jobs-and-wages- -4.5% australia/latest-release 21 CoreLogic, Why didn’t the Australian Other services housing market crash? https://www. -3.8% corelogic.com.au/news/why-didnt- australian-housing-market-crash Manufacturing -2.9%

Professional, scientific and technical services -2.8%

Administrative and support services -2.4%

Wholesale trade -2.2%

Education and training -1.8%

Mining -1.3%

Electricity, gas, water and waste services 1.0%

Health care and social assistance 1.6%

Retail trade 2.1%

Public administration and safety 3.1%

Financial and insurance services 4.5% QUARTERLY PROPERTY REPORT | DECEMBER 2020 11

Industrial & Logistics

Conditions in the industrial market remained stable S Y D N E Y MELBOURNE BRISBANE in the September quarter, defying the economic Occupier demand Leasing activity Capital values for challenges posed by the in Sydney trended remained above industrial property COVID-19 pandemic, down from a near- average in the in Brisbane have according to JLL. Most record level in the September quarter risen over the last 12 major markets recorded June quarter, but in Melbourne, says months, according elevated occupier activity, remained above the JLL, despite Stage to JLL. Transaction which supported rental 10-year quarterly 4 “stay-at-home” volumes rose rate stability across most average, according restrictions being in significantly over the precincts despite near record to JLL. Quarterly place for the entire September quarter supply delivery. The sector rental growth was quarter. Supply despite economic continues to draw significant mixed, with growth delivery accelerated uncertainty. While interest from investors, with rates ranging from in the quarter with the retail sector has more than $1.8 billion of as low as – 1.0% in 17 projects adding been the main driver transactions recorded in the the outer west to as 304,690 sqm of tenant demand quarter. Transaction activity high as 0.7% in the of completions. this year, there was over the past 12 months outer south west. Ongoing investor strong demand totaled $5.75 billion, which is The average rental demand for industrial in the September 34% above the 10-year rate in Sydney fell assets placed quarter from the annual average.22 by 0.2% over the downward pressure manufacturing and quarter but remained on prime yields, with transport and postal up 2.1% over the the average midpoint and warehousing year. Investment falling by 27 bps to a sectors. Stock activity has placed record low of 4.81%.22 completions were 22 JLL Industrial Market Overview, Q3 2020 https:// downward pressure more than double www.jll.com.au/en/trends-and- on prime and the five-year average insights/research/australia- secondary yields, in the quarter. 22 national-industrial-market- with midpoints overview-3q20 compressing by 10 bps and 13 bps, respectively.22 QUARTERLY PROPERTY REPORT | DECEMBER 2020 12

PRIME INDUSTRIAL YIELDS By city

LONDON 3.9% BEIJING 5.3% SHANGHAI 5.3%

SEOUL 5.3%

LA 4.5% TOKYO 4.0%

HONGKONG 3.5%

SINGAPORE 5.5%

BRISBANE 5.7%

PERTH 6.6%

ADELAIDE 7.1%

SYDNEY 4.7%

MELBOURNE 5.2% AUCKLAND 5.3%

Source: Colliers International, data as at September 2020 QUARTERLY PROPERTY REPORT | DECEMBER 2020 13

Office

SYDNEY CBD MELBOURNE CBD BRISBANE CBD Around 105,000 sqm of new and 2020 saw one of the largest supply Face rents in Brisbane’s CBD remained refurbished office space was expected to pipelines ever delivered to the Melbourne fairly steady across all grades for the be completed in the Sydney CBD in 2020, CBD, according to Cushman & four quarter in a row, according to and the potential exists for another Wakefield. However no new supply was Cushman & Wakefield. While the market 750,000 sqm to enter the market added in the fourth quarter. On the has fared well during the COVID-19 over the next five years, according to demand side, the COVID-19 induced pandemic in terms of rental rate Cushman & Wakefield. The pandemic Stage 4 lockdown in Victoria resulted movement, deal numbers have been induced rise in rental incentives slowed in subdued inquiry numbers until social considerably down on the same period in the December quarter, however prime distancing and travel restrictions eased last year. Premium gross effective rents gross effective rents were still down by in the fourth quarter. Cushman & are down 4.2% over the year, due to a 11% when compared to a year ago.23 Wakefield expects enquiries to improve rise in incentives. In terms of investor as offices reopen in 2021, assuming demand, enquiries have been subdued the pandemic remains contained. Net for most of 2020 due to the pandemic. rental incentives continued to track Cushman & Wakefield expects higher in the fourth quarter, but the enquiry levels to improve, assuming rise was significantly slower than in the pandemic remains contained, as the previous three quarters. Premium economic activity builds and white- grade incentives rose to 35% from 34%. collar workers return to the office in 2021. Premium grade net face rents New supply for the next two years is declined by 1.4%.24 expected to be limited.25

23 Cushman & Wakefield, Marketbeat, Sydney CBD Office Q4 2020 https://www.cushmanwakefield.com/en/australia/insights/sydney-marketbeat 24 Cushman & Wakefield, Marketbeat, Melbourne CBD, Office Q4 2020 https://www.cushmanwakefield.com/en/australia/insights/melbourne-marketbeat 25 Cushman & Wakefield, Marketbeat, Brisbane CBD, Office Q4 2020 https://www.cushmanwakefield.com/en/australia/insights/brisbane-marketbeat QUARTERLY PROPERTY REPORT | DECEMBER 2020 14

Spotlight on 2021 by sector

Residential Industrial & Logistics Office Australia’s housing markets have built Industrial and logistics outperformed An underdog in 2020, office has the momentum through the end of 2020, other mainstream real estate sectors potential to recover this year as people pointing to a strong start to 2021, in 2020 as it benefited from the slowly return to their workplaces. Colliers according to CoreLogic. CoreLogic’s accelerated trend toward ecommerce. Head of Office Capital Markets Adam national home value index rose a further As we head into 2021, Colliers forecasts Woodward said that despite limited 1.0% in December, the third consecutive that ecommerce take-up will remain at transactions last year, the outlook for month-on-month rise following a high levels while the COVID-19 outbreak office markets remains a positive one. 2.1% drop in dwelling values between has the potential to revive Australia’s “There has been much discussion about April and September. 26 Some of the manufacturing capabilities, further the underlying fundamentals of the office indicators suggesting this year will be benefiting the sector. Colliers expects market shifting; however, while there is a positive one for residential markets a pickup in certain light manufacturing likely to be much more flexibility in the include rising consumer and business sectors, including assembly, while food workplace, recent survey results have confidence27 28 , low covid-19 numbers, and pharmaceutical manufacturing showed over 85% of office workers do and an economy improving faster is expected to remain strong. The not want permanently to give up their than expected. Meanwhile, bank loan announcement of $1.3 billion in funding desk. This will be key to underpin long deferrals continue to fall, reducing the as part of the government’s federal term occupancy in the office markets,” chance of forced sales.29 With official budget will provide support to medical, Woodward said in Colliers’ ANZ Capital interest rates set to remain low for at defence, space, clean energy, food Markets Outlook 2021. Colliers expects the least three years, the market is likely to and beverages and resources/critical office asset class will continue to attract be further supported by low mortgage minerals processing, adding to demand strong demand, with fundamentals of the rates.30 ANZ Bank economists recently for warehouses. With the economy Australian market providing “extremely said their earlier house price forecast of expected to gain momentum in 2021, attractive” opportunities to offshore a decline of 10% from peak to trough leasing demand is likely to accelerate to groups within the region. has proven too pessimistic. Instead, they record levels as businesses obtain more “We expect this flow of capital is likely are forecasting price gains of around 9% clarity around the short to medium term to continue through into 2021,” Woodward across Australia’s capital cities in 2021.31 impacts of the pandemic.32 said.33 Positive for the outlook is rising business confidence and a 9.2% rise in job advertisements in December from November. Job ads are now up 4.1% on pre pandemic levels.34 Looking further ahead, Dexus Research is forecasting that underlying office demand will increase over the long term as Australia’s service sector continues the solid growth it has experienced over the last 20 years.35

26 CoreLogic, December home values indices https://www.corelogic.com.au/news/corelogic-december-home-value-indices 27 NAB Monthly Business Survey, November2020 https://business.nab.com.au/monthly-business-survey-november-2020-43972/ 28 Westpac-Melbourne Institute Index of Consumer Sentiment, 9 December 2020 https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ economics-research/er20201209BullConsumerSentiment.pdf 29 APRA, Temporary loan repayment deferrals due to COVID-19, November 2020 https://www.apra.gov.au/temporary-loan-repayment-deferrals-due-to-covid- 19-november-2020 30 Statement by Philip Lowe, Governor: Monetary Policy Decision, 3 November 2020 https://www.rba.gov.au/media-releases/2020/mr-20-28.html 31 Ana Narvaez, “House Prices Set to Grow 9pc in 2021”, The Urban Developer, 16 November 2020 https://theurbandeveloper.com/articles/house-prices-set-to- grow-9pc-in-2021 32 Colliers, Industrial, Second Half 2020 https://info.colliers.com.au/industrial-rfr-h2-2020 33 Colliers, ANZ Capital Markets Outlook 2021 https://www.colliers.com.au/en-au/news/capital-markets-outlook 34 ANZ, Job ad numbers keep on rolling https://media.anz.com/posts/2021/January/job-ad-numbers-keep-on-rolling?adobe_ mc=MCMID%3D75917981272212077621033514881145788712%7CMCORGID%3D67A216D751E567B20A490D4C%2540AdobeOrg%7CTS%3D1611449984 35 Dexus Research, Australian Real Estate Quarterly Review, Q4 2020 https://www.dexus.com/discover-dexus/prism/australian-real-estate-quarterly- review-q4-2020 QUARTERLY PROPERTY REPORT | DECEMBER 2020 15

Outlook

Australian property remains an Real estate debt capital markets are drawn out.37 Demand for Australian attractive asset class, particularly expected to continue to evolve in property will be supported by low when comparing yields to bond rates, 2021. In Australia, the major banks interest rates, rising business and and given expectations that the low have traditionally been the primary consumer confidence, and the continued interest rate environment will continue source of debt finance for real estate economic recovery this year, although as the economy recovers. In research investors. However, the banks have the winding back of fiscal support poses outlining several investment themes for become more risk averse and have a headwind. That said, the outlook 2021, JLL notes that global bond yields adopted increasingly onerous lending for the market remains tied to the have followed a downward trajectory criteria, concentrating their activities pandemic. While the economic recovery over the past 30 years as potential on lower risk property transactions with will help to support growth in property GDP growth has lowered for mature a more certain cash flow profile. JLL values and rents, any significant economies and central banks have estimates the market share of non-bank outbreaks will put the recovery at risk. been largely successful in managing lenders could grow to 30% of the real One factor likely to limit growth in the inflation. Australia and New Zealand estate lending market. As a result, the market near term is migration. After were historically viewed as higher investable universe for non-bank lenders international borders were closed on growth/higher inflation economies with would rise to $111 billion.36 March 20 last year, overseas migration government bond yields above the US, Australia’s rapid fiscal and health fell to near zero, which will temper UK and Japan. In recent years, however, response to the covid-19 pandemic Australia’s record of strong population bond yields have converged across means the economy is well placed to growth. Federal government forecasts mature economies. And, as a result of continue its recovery through 2021, show net overseas migration will be COVID-19, interest rates are likely to providing the virus remains contained. negative in the 2020-21 financial year remain low for longer than previously The Reserve Bank of Australia is for the first time since 1946. As a result, expected. Deloitte Access Economics is expecting GDP growth of 5% in 2021 population growth is expected to slow forecasting the 10-year bond rate will and 4% in 2022, although warning the to 0.2% in 2020–21 and 0.4% in 2021–22. remain below 1.00% through 2024 and recovery will be uneven, bumpy and That is the lowest growth in over a only move back to 1.78% by 2029.36

36 JLL, Australia and New Zealand investment market themes for 2021 https://www.jll.com.au/en/trends-and-insights/research/australia-and-new-zealand- investment-market-themes-for-2021 37 RBA Governor Philip Lowe, Opening statement to the House of Representatives Standing Committee on Economics, 2 December 2020 https://www.rba.gov. au/speeches/2020/sp-gov-2020-12-02.html QUARTERLY PROPERTY REPORT | DECEMBER 2020 16

hundred years.38 Migration will recover Murphy told the ABC that international population growth over the long term, when travel restrictions lift, and this travel is unlikely to begin again to transparent real estate markets, and low will support economic growth, and fuel and from Australia this year, even if volatility for returns through the cycle. demand for property and construction a large number of the population is JLL surveyed top investment leaders activity. However, the timing remains vaccinated.40 Deloitte Access from 38 global and regional investors uncertain. In the first week of January, Economics has forecast it may not be on how COVID-19 is impacting their Qantas Airways resumed taking until 2024 that global and Australian decision making. One of the questions bookings for international flights people movements are fully back at was about their investment intentions across its entire network from July 1 2019 levels.41 for major Asia Pacific geographies this year.39 However, the resumption through 2021. The results for Australia According to JLL, Australia remains of international flights will ultimately were positive, with 50% of investors an attractive real estate destination depend on the federal government planning to increase their exposure and relative to other mature economies. deciding to lift restrictions. Recently, the only 7% looking to down-weight their Investors are attracted to strong GDP health department secretary Brendan real estate holdings in Australia.42 growth, livability attributes that support

SURVEY: ASIA-PACIFIC INVESTMENT INTENTIONS

Source: JLL

COUNTRY INCREASE H O L D LOWER

Australia 50% 43% 7%

Hong Kong 4% 78% 18%

India 18% 81% 1%

Japan 56% 38% 6%

Mainland China 51% 41% 8%

Singapore 44% 52% 4%

South Korea 44% 55% 1%

Southeast Asia 15% 77% 8% (ex Singapore)

Other 4% 89% 7%

38 Parliament of Australia, Budget Review 2020-21 https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/ BudgetReview202021/Immigration#:~:text=With%20migration%20largely%20halted%20due,over%20200%2C000%20by%202023%E2%80%9324. 39 Lauren McMah, “Qantas resumes international bookings for July 2021” https://www.news.com.au/travel/travel-advice/flights/qantas-resumes-international- bookings-for-july-2021/news-story/56e09ef09e3d197c114df38a2799678c 40 Jack Snape, “International travel off the cards for 2021, coronavirus border restrictions likely to remain in place” https://www.abc.net.au/news/2021-01-18/ international-travel-unlikely-2021-coronavirus-borders/13065868 41 Deloitte Access Economics Business Outlook: We got this https://www2.deloitte.com/au/en/pages/media-releases/articles/business-outlook.html 42 JLL, Australia and New Zealand investment market themes for 2021 https://www.jll.com.au/en/trends-and-insights/research/australia-and-new-zealand- investment-market-themes-for-2021 QUARTERLY PROPERTY REPORT | DECEMBER 2020 17

Our approach

At Banner Asset Management, we In the residential space, our focus provide an opportunity for investors to is on medium density development gain exposure to the real estate debt (apartments and townhouses) in market through lending to established the bigger population centers of and proven developers for development Sydney, Melbourne, and South East projects, or for strategic acquisition of Queensland, which provide greater sites earmarked for development in the liquidity and depth than other markets future. We also provide opportunities to in Australia. This includes mixed-use invest in direct real estate through funds residential projects that incorporate alongside other project partners. uses such as office space or retail. We also invest in non-discretionary retail We invest in developments with a proven and the industrial sectors, as growth use, evidenced either by presales or in ecommerce drives demand for lease agreements, as well as strong warehousing and logistics. fundamentals, including proximity to population growth and the likelihood of resilient demand. QUARTERLY PROPERTY REPORT | DECEMBER 2020 18

MELBOURNE SYDNEY

Level 21, 90 Collins Street, Suite 7.05, Level 7, 1 Margaret Street, Melbourne VIC 3000 Sydney NSW 2000 +61 3 9929 6400 +61 2 9262 2422 [email protected] [email protected]

DISCLAIMER

This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. The report is provided for information purposes and reference only and is not intended to be, and must not be, taken as the basis for an investment decision. The contents of this report should not be construed as investment, legal, tax or other advice. There is no obligation to update the information. The delivery of this report will under no circumstances create any implication that the information contained has been updated or corrected as of any time subsequent to the date of publication or, as the case may be, the date as of which such information is stated.