Direct property to weather economic storm

Direct property investments are well-placed to withstand any downturn in the economy during 2001, a leading property researcher told the Property Council conference last week.

"Property is well-placed to deal with any slowdown although some segments, such as the Melbourne and Brisbane office markets, will be a concern in 2003," says CB Richard Ellis head of research Kevin Stanley.

Commercial property will suffer a slowdown this year in line with leading economic pointers. The drop in white-collar employment to 2.9 per cent of the workforce in 2001 will mean a decline of about 120,000 staff nationally. Stanley says this will have to be factored into demand for office space in capital cities.

Likewise, the drop in retail sales following the introduction of GST has hit the turnover of department stores, clothing and household sectors badly and that will reflect on property demand for these retailers.

"However, retail is expected to grow by 3.75 per cent in 2001, making it a year of recovery, with the next growth in neighbourhood centres," Stanley says.

Industrial production is expected to fall to 2.5 per cent this year, leading to less development in this sector, he says.

"All states will be heading in a similar direction downwards, although developer competition will intensify as they chase fewer clients."

Uncertainty facing property investment is due to the hard landing experienced by the US economy, says ANZ chief economist Saul Eslake.

"The US is having a much harder landing than expected, with growth slowing from 5 per cent in 2000 to 2 per cent in 2001," he says.

"It is quite possible for the US to experience a recession ? although I am not predicting that."

As Australia always mirrors the US economy, Eslake believes Australia will also be heading for a fall.

However, he says there are two factors in the Australian economy that could help soften the hard landing.

The first is Australia's competitive currency and the second is that it is a federal election year. Public spending is expected to increase dramatically as the election draws nearer, with November tipped as likely date. The current government must go to the polls before the end of January next year.

Australia's economic growth rate will slow to 2.75 per cent this year, Eslake predicts, with private sector spending growing by less than 2 per cent ? the slowest since 1992.