During the 2023 financial year (FY23), the Australian economy grappled with subdued market conditions, exacerbated by the most significant surge in the Reserve Bank of Australia’s cash rate target in over three decades. This had a widespread impact, with various industries and businesses facing considerable challenges. The Australian Real Estate Investment Trusts (A-REITs) were no exception, experiencing notable fluctuations in their returns throughout FY23.
Improving returns
Annually BDO Australia undertakes a survey of Australian Real Estate Investment Trusts. This survey tracks the listed Australian property industry over the year by ranking the S&P/ASX 200 A-REIT Index trusts (A-REIT Index) using key financial and investment indicators. Our analysis reveals that in FY23, the A-REIT Index lagged behind the S&P/ASX 200 Index by 6.6%. A-REITs delivered a positive return of 3.1%, a significant improvement from FY22’s negative return of 15.4%.
All categories outperformed their FY22 result in FY23
Notably, the office and retail sectors performed poorly, delivering negative returns for FY23, while
industrial and diversified A-REITs delivered positive returns. The A-REIT Index experienced a robust start to FY23, surging by approximately 10% in July, only to plummet approximately 18% by September. This downturn was primarily driven by significant increases in borrowing costs, which heavily impacted the largely debt-dependent sector. The latter half of FY23 witnessed a strong initial performance from A-REITs at the outset of the calendar year, before tapering off as FY23 ended.
Sector trends
Despite the challenges, our findings have uncovered pockets of strength over the past year, with three pivotal themes that we anticipate will continue to exert influence on the perform performance
of A-REITs throughout the current financial year:
- Alternative real estate assets are becoming the cornerstone for profits
- Stronger REITs are capitalising on higher borrowing costs to acquire undervalued assets
- A-REITs are walking the line between conflicting investor mandates.
The Australian REIT market is remarkable and even in the darkest of times, it always finds a way to innovate, uncover a new niche, or explore an opportunity that others haven’t yet considered.
Read the full survey: A-REIT Survey 2023 – BDO
