Author Luke Dixon - Head of Real Estate Research, AMP capital

As we move into the income growth cycle of real estate, key government measures announced in the federal budget point to strong upside for investors over the medium term.

Real asset investors will benefit from the income tax cuts, infrastructure spending, and investment in R&D/Aged care services. Asset performance will be buoyed by the increased demand these initiatives will generate for office space, as unemployment levels drop, and consumer confidence gradually improves.

This is how we believe each sector will benefit from the budget:


  • Jobs growth will create positive conditions for space demand in the office sector. Small business jobs growth will be a key driver of new demand for office space moving forward, thanks to company tax cuts, and increased incentives to hire new people were announced.

  • Over 80% of base office demand for space comes from small businesses with fewer than 20 employees, we expect demand from this sector for part floor or smaller office suites to lift in the near term, creating rental growth opportunities for landlords in tight vacancy markets such as Sydney and Melbourne.

  • Next generation tenants, such as technology, science and research also got a hand up in the budget thanks to the $1.3 billion 21st century Medical industry growth plan – which will benefit metropolitan office markets such in Sydney’s north and Melbourne’s South East.

  • Key take out: CBD office market to see sustained, strong demand conditions continue as staff levels continue to rise. R&D and tech growth will contribute to metropolitan market demand, particularly in the healthcare sector.


  • Income tax cuts, that will reach cumulative value of $4,600 a year by 2024 will provide a long-term boost to household budgets, that will materialise into retail consumption.

  • For retail consumption to seriously lift on the back of income tax cuts, wage growth needs to be tracking at 2%+ real growth as it did in 2003-2008 during the Howard Government tax cut years.Some benefits will be felt in the short term however, favouring non-discretionary services such as groceries.

  • The initial impact of the tax cuts is a modest one, of about $500 a year from July this year, however as tax cuts build up over the ensuing seven years, and wages eventually lift, we are confident that retail sales growth will move out of the 2-3% zone to 4%+ by 2020.

  • The national energy guarantee, which nets households annual savings of $400 per annum, will also contribute to more breathing room in lower income household budgets.

  • Key Take out: Consumer confidence to lift in the short term, with retail trading conditions seeing sustained performance improvement beyond 2019-2020 as long-term benefit of tax cuts is felt by households. Convenience assets and malls with diverse tenant mix still favourable in this environment.


  • Industrial was one of the biggest winners in the budget, benefitting not only from increased infrastructure investment of $25 billion, but also from the income tax cuts likely to drive retail consumption in the next five years.

  • Over 70% of tenant take up in the industrial markets nationally, now originates from the retail, wholesale trade and transport/logistics sectors, which will feel the benefits of increased retail consumption as household budgets improve.

  • Infrastructure and traffic improvement strategies such as the $1 billion urban congestion fund, will create positive conditions for the burgeoning last mile logistics sector in inner urban areas.

  • The big ticket $24.5 billion infrastructure spend announced in the budget will be positive for the movement of freight and support logistics operators on the East Coast and the speedy movement of throughput. The $971m Coffs Harbor bypass will be a major catalyst for freight movement from Sydney to Brisbane.

  • Key take out: Sydney industrial continues to offer strongest demand, it is however getting more expensive due to historical highs in demand. Brisbane industrial is still relatively weak, with higher vacancy rates, however infrastructure investment points to improved upside in the medium term.

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