Investor Update - May 2023

Overview

The opening months of 2023 have been characterised by notable changes in Australia’s political and financial landscape. With the Australian Labor Party’s state election victory in New South Wales, Labor is now in power federally and in all mainland states.

In response to persistent inflationary pressures in the economy, the RBA has continued to implement cash rate rises, with the most recent 25 basis point rise increasing the cash rate to 3.85% p.a. on Tuesday 2 May 2023. According to RBA Governor Philip Lowe, the central bank currently forecasts inflation to average 4.5% in 2023, and 3% by mid-2025.

The labour market remains competitive, with unemployment currently at 3.5% and wage growth continuing to increase accordingly. Household spending appears to be slowing due to a combination of higher interest rates, cost-of-living pressures, and an earlier decline in housing prices.

Although commercial property yields continue to soften as cost of debt increases, interest rates are now expected to plateau in mid-2023. With increased interest rate stability, and construction costs still highly inflated, it is expected that yields may begin to stabilise, and potentially tighten, as demand for commercial property strengthens.