Examining the performance of commercial property in changing economic conditions

An important part of Australian property investment analysis is comparing financial performance against competing investment asset classes. There is a need to compare investment performance with indices and to study the impact of macro-economic factors over the economic cycle/time. Over a long 28 years quarterly data series (1985-2012) this research examines eight leading investment classes with reference to economic conditions and levels of new supply to see if desmoothed property investment performance is superior in changing market environments. The findings show the performance of the investment asset classes vary across different economic conditions with Australian equities providing the overall best annual mean return (8.3%) with a high standard deviation (18.1%). In comparison, annual mean return for Direct property was 6.3%, although this is offset by low volatility (10.4%). It appears that those asset classes linked to the equity markets (Australian and International equities, and Listed property), performed better in stable and growth economic phases. Likewise, Australian fixed interest performed well in periods of economic recession. Overall, the performance range of the asset classes narrowed during periods of economic growth with the exception of Direct property where underlying property characteristics (new supply), separate from economic conditions, can impact Direct property performance.