The question of what lies ahead for Australia's economy and major property sectors is always a hot topic in January.

Urban Property Australia's Managing Director Sam Tamblyn is among the best placed to know the trends that will influence the market in 2019, having advised a long list of corporates and financial institutions across Australia for many years.

Below are his forecasts for the coming year.

Investment activity

Research from UPA revealed Australian commercial real estate investment market had another robust year last year, despite a pullback from Chinese purchasers, with $35 billion transacted.

Buoyed by decade low vacancy rates, the office sector accounted for 52 per cent of the total volume boosted by a number portfolio transactions, highlighted by Oxford Properties’ acquisition of the Investa Office Fund.

While Chinese investment fell to five-year lows in 2018, investment activity into Australia from Canadian, American and Hong Kong purchasers all increased over the year.

Mr Tamblyn said while there were strong signs for investment this year, it may be done with a different emphasis.

"UPA expects another solid year for investment activity in 2019 given Australia’s strong economic fundamentals," he said.

"Investors will be increasingly focused on assets offering potential for income growth with pricing reaching historical highs across all sectors and yields close to peaking."

The Melbourne and Sydney office markets are at decade-low vacancy rates. Source: Ken Jacobs Christies Double Bay

Office market

Australia’s employment continues to grow at global leading rates, with 285,000 new jobs created over the year.

With Australian job advertisements hitting the highest level on record in November, further downward pressure is expected for office vacancy rates across the country.

While Melbourne overtook Sydney as Australia’s tightest CBD office market, Mr Tamblyn said the improvement across the rest of the country was of greater note.

"For the first time since in 10 years, all CBD office markets recorded a decline in vacancy rates over the year," he said.

"Into 2019, despite Melbourne and Sydney at decade-low vacancy rates, UPA forecasts that vacancy will decline further in Australia’s two largest CBD office markets.

"Likewise, the expanding local economies for Queensland and Western Australia will lead to further improvements in their CBD office vacancy rates this year."

Industrial market

With occupiers increasingly investing in their supply chain management systems to accommodate their growing e-commerce presence and to fulfil their customers’ delivery request options, investor and tenant demand alike for industrial properties remans unabated.

Mr Tamblyn said UPA expected demand for industrial space will be further supported by Australia’s massive investment program in infrastructure across the country.

"Public infrastructure spending increased by 4.6 per cent over 2018, which is a fundamental driver of demand for industrial and logistics space in coming years," he said.

"Although industrial yields have fallen below the previous benchmarks set in 2007, investors remain bullish on industrial property given the infrastructure investment pipeline. 

"While UPA expects modest compression of industrial yields along the East Coast, Perth and Adelaide industrial yields are projected to remain steady with soft investor demand for those cities."

The introduction of Amazon into Australia has highlighted the rise of e-commerce. Photo by Loewe Technologies on Unsplash

Retail market

According to UPA, the Australian retail property sector continued to perform well over 2018, despite challenging retail trade conditions with the retail market supported by a growing population and strong employment conditions.

The entrance of Amazon into Australia highlighted the rise of e-commerce, however in a global context, online retail trade penetration in Australia remains immature with online sales accounting for only 6 per cent of all retail sales in comparison to China at 28 per cent and the UK (18 per cent).

Mr Tamblyn said e-commerce was only going to get bigger.

"Looking ahead, with e-commerce expected to continue to increase, UPA expects rental growth will remain subdued for retail assets while yields for retail property will rise as investor demand eases for the asset class," he said.

Residential Market

While the Australian residential market is facing some headwinds, Mr Tamblyn said strength of the underlying fundamentals of the sector suggests that the recent weakness has been driven by tighter credit conditions rather than softer demand.

"Although some macroprudential measures on interest-only lending have been loosened recently, UPA anticipates the tightening lending environment will remain for the medium term," he said.

"We believe there will further price softening over 2019 in Sydney and Melbourne, given they have already recorded falls of 9 per cent and 7 per cent respectively."

He added that UPA expected the tighter lending environment to constrain new development in the short term

"We forecast that Australia will soon be in a state of undersupply, with vacancy rates already low across major Australian cities and population growth still at above-average levels.

Australian economy

Global economic growth is expected to remain above average growth however the trade tensions between China and the US represent a downside risk to the global economy in coming years.

Given the downturn in the housing market and the tighter credit conditions, Australian economic growth is expected to moderate further in 2019.

Mr Tamblyn said UPA expected the cash rate to remain on hold throughout 2019.

"The fastest growing states over 2018 in Australia are those with the fastest growing populations – Victoria and NSW," he said.

"Looking ahead, Queensland and Western Australia are both expected to continue on their roads to recovery this year boosted by high commodity prices and improving population growth levels."

Source: Urban Property Australia

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