Continued low interest rates and low government bond yields coupled with the relatively high yields offered by property stocks should support further growth in the sector in 2015.
Property stocks – both listed property trusts and property businesses – were among the strongest performing shares in 2014 with average gains above 20 per cent. By comparison, the ASX 300 ended the year up just 1 per cent, dragged down by the fall in commodity prices.
Construction and development giant Lend Lease ended 2014 as the top-performing property stock on the ASX 300 with its share price rising 47 per cent over the calendar year, pushed its market value to $9.5 billion.
Analysts expect a boost to future Lend Lease earnings from its $38 billion pipeline of major infrastructure projects and apartment developments such as the $2.65 billion NorthConnex Road project and the $6 billion Barangaroo South mixed-use development, both in Sydney. Astro Japan Property Group, which invests in Japanese real estate, was the top performing A-REIT ahead of self-storage property trust, National Storage REIT, while another construction and development giant, Leighton Holdings, also managed gains above 40 per cent.
The favourable outlook for the childcare sector and the increasing appeal of childcare centres as high-yield, low-risk property investments drove up the share price of the two biggest listed childcare landlords, the Folkestone Education Trust and Arena REIT.
Westfield Corporation, with the majority of its shopping malls based in the US, was boosted by the weaker Australian dollar, while pub landlord Hotel Property Investments, benefiting from the most favourable investor sentiment about the pub sector since the global financial crisis.
Other strong performers included the diversified GPT Group, which rounded out the 2014 by raising $872 million in new equity for its unlisted office and shopping centre funds and floated its $376 million GPT Metro Office Fund.
OTHER STRONG GAINS
There were also strong gains for Frank Wolf’s Abacus Property Group, which ended the year by buying the heritage-listed Goods Shed North site on Collins Street in Melbourne’s Docklands from Lorenz Grollo’s Equiset group for $76.2 million, a deal flagged by The Australian Financial Review.
“At this juncture, we see no compelling catalyst for a rebound in the Australian economy, which means domestic interest rates should remain near all-time lows and any downside risk to property prices is unlikely during 2015,” said Tony Sherlock, senior property analyst at Morningstar.
“Our preferred long-term property exposures are firms owning quality assets in the most desirable locations,” he said. Top of the list, Mr Sherlock said, were Goodman Group and Westfield Corporation, “both being large, high-quality, well-run property groups with offshore exposure”.