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Home June 2025 quarter ASX A-REIT market update
July 30, 2025

June 2025 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

 

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index rose 13.4% over the June quarter outperforming the broader equity market, despite the S&P ASX 300 Index returning a creditable 9.5%. During the period, many of the global macroeconomic and geopolitical fears that were gripping the market somewhat dissipated, at least in terms of stock market returns.

The benchmark is dominated by Industrial heavyweight Goodman Group (GMG), which recovered strongly over the quarter, closing 21.0% higher, almost recovering to where it began 2025. The more conducive market environment also helped other property fund managers. Qualitas Limited (QAL), led the way, gaining 45.6%, despite limited company specific news. Solid residential house price growth is supportive of QAL’s business. Charter Hall Group (CHC) was also an outperformer, adding 20.1%. A more stable valuation environment and lowered macroeconomic concerns are a pleasant change for CHC’s business. Alternatively, HMC Capital Limited (HMC) was a meaningful underperformer, losing 18.1%, with ongoing issues across its healthcare property business, due to major tenant, Healthscope’s receivership process, along with a delayed settlement of a key asset that was to seed its Energy Transition business. The CEO of that business also departed HMC. It appears as if this will no longer be the growth driver for HMC, that was once anticipated.

Office property owners were underperformers in the quarter. Recently released external valuations saw limited movement for office properties, with the bulk of portfolios moving within a +/- 2% band. This was characterised by face rent growth offsetting a marginal expansion in capitalisation rates. Mixed rental data however tempered returns. Recent data showed the Melbourne CBD has had the strongest net absorption, but is facing the weakest effective rent growth, with a decline of more than 8% over the past 12 months. These stats were somewhat dominated by Coles planning a move of its head office from its current suburban location to an office building near Southern Cross Railway Station. Absorption numbers were less impressive in Sydney, however effective rents grew 10% over the year, driven by a reduction in incentives. Cromwell Property Group (CMW) lost 6.1% in the quarter, whilst Dexus (DXS) gave up 3.5%. Centuria Office REIT (COF) finished 2.2% higher and Perth-exposed GDI Property Group (GDI) rose 3.9%, still meaningfully underperforming the property index.

Shopping centre owners rose sharply in the June quarter, but still managed to underperform the index. Unibail-Rodamco-Westfield (URW) gained 12.4%, with a positive response to its investor day. Somewhat sadly for local investors, URW announced it would delist from the ASX. After a multigenerational run, this marks the end of offshore Westfield-branded shopping centres’ association with Australia. Locally, Vicinity Centres (VCX) moved 12.3% higher and domestic Westfield shopping centre owner Scentre Group (SCG) lifted 6.0%. Owners of smaller neighbourhood shopping centres also produced solid returns, with Region Group (RGN) up 9.7% and Charter Hall Retail REIT (CQR) adding 10.7%.

Uniformly positive house price growth around the country supported residential property developers during the period. Cedar Woods Properties Limited (CWP) jumped 36.6% higher, as it upgraded full year earnings guidance and restocked it land bank. Peet Limited (PPC) also outperformed, gaining 19.7%, supported by the announcement of a strategic review process. AV Jennings Limited (AVJ) rose 9.9% as it heads towards completion of its takeover. Finbar Group Limited (FRI) underperformed the index, up 0.7%, as its previously announced CEO transition occurred in June.

Market outlook

The listed property sector is in good shape and provides investors with the opportunity to gain exposure to high quality commercial real estate at a discount to independently assessed values. While share market volatility may be uncomfortable at times, the offset is liquidity, enabling investors to rebalance portfolios without the risk of being trapped in illiquid vehicles.

Rising interest rates have been a headwind for many asset classes, with property, both listed and unlisted, a particularly interest rate sensitive sector. In February, the Reserve Bank of Australia made its first cut to the cash rate target since November 2020, heralding a more buoyant environment for the property sector. The February reporting season also saw stocks providing solid updates, valuation stability and an expectation of liquidity returning to the property transaction market. Long term valuations are driven by “normalised” interest costs, meaning the impact of short term hedges maturing is mostly immaterial. A second 25bp interest rate cut was delivered in May 2025. Should current expectations for further interest rate cuts eventuate, the sector should perform well.

The industrial sub-sector continues to be the most sought after, given the tailwinds of e-commerce growth, the potential onshoring of key manufacturing categories and the decision by many corporates to build some redundancy into supply chains to cope with current disruptions. All of these factors are contributing to ongoing demand for industrial space, which has been evidenced by rapidly accelerating market rents and vacancy rates at historic lows of around 2% in many markets. While rental growth has recently cooled, construction costs remain elevated making additions to supply difficult and thereby prolonging robust conditions.

We remain cognisant of the structural changes occurring in the Retail sector with the growing penetration of online sales and the greater importance of experiential offering inside malls. Recent performance of shopping centre owners has however been strong, with consumers showing resilience and share prices moving higher. It is interesting to note the juxtaposition of very high retail sales figures despite very low levels of consumer confidence, no doubt impacted by rising costs of living. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants.

The jury is still out on exactly how tenants will use office space moving forward, but demand for good quality well located space remains solid and there is growing momentum from companies to get staff back into the office. Leasing activity is beginning to pick up, and transactional activity is also returning, with discounts to book values materially reduced. Incentives on new leases remain elevated.

We expect to see limited further downside to asset values in office markets but elsewhere expect market rent growth to largely offset cap rate expansion, particularly in industrial assets. Listed pricing provides a buffer to such movements.

The content above is taken from the Cromwell Phoenix Property Securities Fund quarterly report. Sign up here to be the first to access the latest report and to gain a deeper insight into the Fund’s performance.

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