Tuesday, September 28, 2021

ANALYSIS: Regional Australia recovering faster than the capitals

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Regional Australia is in turn-around mode, according to analysis by investment bank Morgan Stanley.

Housing prices are rising faster in the regions than the major cities and the pressure has transferred to the rental market

Morgan Stanley sees a number of reasons for investors to be exposed to regional Australia.

“Specifically, we highlight the end to a multi-year drought, uplift in regional tourism and potential structural de-urbanisation as a result of COVID-19,” the analysts write in a note to clients.

“After three years of drought, recent rainfall has driven a dramatic reversal in agricultural conditions.”

Average grain receivals into Graincorp’s network have been about four metric tonnes over the last three years.

But the intake for the current harvest is more than 12.5, or three times the average of the last three years. ABARES estimates 2020-21 winter crop production will be up 75% on last year.

East coast cattle prices have increased significantly into 2021 as cropping conditions have prompted farmers to restock their herds.

Farm machinery sales are booming, according to the Tractor and Machinery Association of Australia. Sales, particularly tractors, hit levels not seen since the 1980s. Overall December sales were 27% higher than the same month last year.

NSW led the states with sales up 66% on the same time last year and sitting 40% ahead for the year. Victoria reported a 17% rise, Queensland was up 31%, Western Australia up 7% in December. Sales in South Australia were steady ending  27% up and Tasmania finished the year 27% ahead.

And regional tourism is big. “The absence of international travel (and potentially an aversion to the uncertainty/risks of short-haul flights) is likely a boon for regional tourism,” says the Morgan Stanley analysts.

And many from the city see the regions as a good bet to improve their lifestyle while working remotely, a trend accelerated during the pandemic.

At this stage it remains anecdotal but the increased prevalence of working from home (structurally) will drive demand for more space and the ability to live further away from metropolitan areas.Logically this will be beneficial for retailers in more regional areas (at the expense of retailers within greater metropolitan exposures),” says Morgan Stanley.

The analysts say regional retailers who were facing significant headwinds prior to COVID-19 (drought and bushfires) now have better prospects.



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