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Home March 2026 quarter ASX A-REIT market update
April 28, 2026

March 2026 quarter ASX A-REIT market update

Stuart Cartledge, Managing Director, Phoenix Portfolios

 

Market Commentary

The S&P/ASX 300 A-REIT Accumulation Index lost 16.4% over the March quarter, meaningfully underperforming the broader equity market, with the S&P ASX 300 Index off 2.0%. Much of the pain in the property sector was felt in the month of March, as global conflict led to a rise in bond yields. The 10 Year Australian Government bond yield began the month marginally above 4.6%, however spent much of the month above 5.0%. The broader Australian equity market has been supported by its commodity exposure.

In February, most companies under coverage reported their half yearly results to 31 December 2025. Broadly speaking, results were solid, with good leasing outcomes and positive movement in direct property market liquidity. Solid updates across February were however old news come the end of March, with idiosyncratic factors overwhelmed by macroeconomics.

Within the property sector, fund managers were the weakest performers. This is unsurprising, as they are the most leveraged to the market itself. Global uncertainty may also lead to a slowdown in direct market transactions as potential buyers pause to reassess the market landscape. Goodman Group (GMG) lost 17.6%, holding up slightly better than some due to its exposure to the still in demand data centre subsector. Diversified, Australian-focussed fund managers Centuria Capital Group (CNI) and Charter Hall Group (CHC) were weaker, giving up 21.5% and 23.8% respectively. HMC Capital Limited (HMC) was weaker still, dropping 39.4% with much of the damage inflicted prior to March selloff amidst ongoing concerns over its earnings quality and ability to raise capital across its existing verticals.

Office property owners performed broadly in line with the index. Debate about the future of office usage rages on. After persevering through Covid restrictions, there are now concerns that development in AI may affect office usage in the future. Dexus (DXS) somewhat outperformed the weak index, losing 14.6%, while Growthpoint Properties Australasia (GOZ) gave up a similar 13.9%. Large capitalisation peer GPT Group (GPT) fell 16.4%, largely in line with the index. Centuria Office REIT (COF) was weaker, dropping 16.9%.

Shopping centre owners were predominantly outperformers in the quarter, with specialty sales growth and leasing spreads remaining robust in recent periods. Vicinity Centres (VCX) produced a strong result in the half year ended 31 December 2025 (reported in February) and as such only lost 6.2%. The defensive nature of smaller neighbourhood shopping centres also gained relevance in the period, with Region Group (RGN) only dropping 3.4% and Charter Hall Retail REIT (CQR) off 4.8%. Somewhat bucking the trend was Westfield shopping centre owner, Scentre Group (SCG), which collapsed 18.8% after its outlook for 2026 was weaker than many expected.

Residential property developers faced mixed performance in the March quarter. Home prices across the nation showed divergence. Sydney and Melbourne home prices moved marginally lower; however, the rest of the country performed well despite an increase in interest rates and global uncertainty. Dwelling prices in Adelaide rose 3.6%, Brisbane gained 4.8%, while in Perth prices accelerated 7.3% higher. In this environment, Peet Limited (PPC) gave up 3.0% and Finbar Group Limited (FRI) lost 6.5%. Large capitalisation peer Stockland (SGP) was weaker, falling 24.8%, correcting some of its previous outperformance and reflecting its differing geographic exposure.

Despite the unique challenges in the broader childcare and petrol station sectors, the specialist property owners in those segments outperformed over the quarter. Dexus Convenience Retail REIT (DXC) only lost 3.5% after announcing a buyback. Waypoint REIT (WPR) outperformed, off 6.2%. Arena REIT (ARF) finished the period 6.8% lower, while Charter Hall Social Infrastructure REIT (CQR) dropped 14.5%.

Market outlook

The listed property sector provides investors with the opportunity to gain exposure to high quality, institutionally managed, commercial real estate, with projections of solid prospective growth. 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.

Property, both listed and unlisted, represents a particularly interest rate sensitive sector. In recent years interest rates rose off generational lows, providing a headwind for real estate returns and valuations. Despite three cuts in the Reserve Bank of Australia’s target cash rate since February 2025, renewed inflationary concerns have put cash rate hikes back in focus, with the first hike in February 2026 and potentially more to come. Offsetting this, the February reporting season showed property capitalisation rates have stabilised and valuations have risen, along with positive rental growth. The tussle between bond rates and capitalisation rates is ever present, but the recent sell-off in listed property stocks provides a meaningful buffer to investors in listed securities.

The industrial sub-sector continues to show strong absorption of relatively high levels of supply, aided by 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, albeit the previous period of market rents expanding rapidly has dissipated. Vacancy rates remain near historic lows of around 3% in many markets. While rental growth has recently cooled, construction costs remain elevated, making additions to supply difficult and thereby prolonging buoyant 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. Importantly, we are also now seeing positive re-leasing spreads in shopping centres, indicating strengthening demand from retail tenants. These outcomes are no doubt aided by minimal vacancy across retail portfolios.

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. At this stage demand for office space appears to be highly variable depending on location, even within submarkets.

We expect to see limited further downside to asset values in some office markets but elsewhere expect market rent growth to drive valuations higher as capitalisation rates appear to have stabilised. Listed securities provide exposure to such growth, commonly with a buffer to underlying net asset values.

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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