Australia, however, does continue its reputation as a safe haven for investment given its economic and political stability, making it an attractive market to invest in for all.
Australian commercial transactions were at their highest during quarters two to four in 2021, with these periods alone representing $83.7 billion in sales, bringing the calendar year sales volume up to $96.7 billion. The real estate investment trust (REIT) and listed spaces had the greatest accumulation of assets, with over $7.8 billion in net acquisitions, while institutional and offshore activity were also robust. Taking advantage of the rapid price rises and lowering investment yields, private buyers jumped out of the market, disposing of more than $40 billion worth of assets. However this segment also represented competitive investors. Buyers, particularly private syndicates and first time investors looked to diversify their investment portfolio. Despite this, the mismatch still saw more than $8 billion in investment leave the private sector.
Fast forward to 2022 and fundamentals are changing. Through to the end of August 2022, $48.6 billion has been invested in the commercial property sector. New South Wales was the location of choice to invest in, accounting for 43.3 per cent, and its share was up five per cent on last year’s results. Victoria similarly has increased its holdings on 2021 results, now at 27.8 per cent, while markets such as Queensland and Western Australia, which were attractive last year due to their strong population gains, economic growth and future potential, have now slowed.
Looking at asset classes, the confidence in office assets has returned while industrial sales have now moderated after a standout 2021, while retail, hotels and medical/aged care have all seen uplift in activity this year too.
Importantly, the flows of capital are at a significant turning point. The big buyer of 2021, REITs, retreated rapidly this year, selling more than they’re buying. While both institutions and offshore players continue to sell down assets, they continue to grow their commitment to Australian commercial property. Some international buyers in particular have growing confidence in our local market, with the USA and Germany being the regions representing growth in investment this year. Conversely, Singapore, China and Hong Kong have decreased their economic commitment to Australian property significantly.
Private buyers make up a sizeable proportion of our commercial property universe. The changing dynamics of this buyer and seller group is indicative of their understanding of the cyclical nature of our property market. Capitalising on strong yields and increases to capital returns, together with availability of finance, meant these investors were quick to sell in 2021. While this trend has continued again this year, the extent has been far less. As market conditions move, we’re likely to see private investors become net purchasers, capitalising on emerging opportunities and stress of owners who may have purchased at peak rates last year. Similarly, as bond rates grow, the spreads will become increasingly unsustainable for some property owners which will benefit the private sector and their ability to move quickly when opportunities present themselves.
