Australia’s commercial property market registered $14.2b in transactions in Q2’22, a decline of 33% from a year earlier, according to the latest Australia Capital Trends report from MSCI Real Assets, a part of MSCI.
Across the core commercial sectors, industrial fared worst with transaction volume in the second quarter slumping by 63% compared to a year earlier to $4.1 billion. Trading of office buildings increased by 7% to $5.4 billion and in the retail sector, volume declined by 28% to $3.0 billion.
Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI, said: “After such a strong 2021, volumes were likely to normalise in 2022, but the recent economic issues have further impeded activity, particularly at the smaller end of the deal spectrum. Smaller investors are more sensitive to increases in the cost of capital so the recent interest rate rises may have curbed deal flow.”
For the year so far, deal volume came to $28.8 billion, a 12% decline on a year earlier. Portfolio deals were a factor in the market’s prior surge, particularly in the industrial sector, but for H1 2022 there were only four such transactions, compared to 17 in H1 2021.
The drop in the total number of settled transactions paints a weaker picture of the market in the first half of 2022 than the dollar-volume decline, with the count of unique transactions falling 32% year-on-year.
There were some positives in the market. The hotel sector posted deal volume in H1 2022 that was 84% greater than that of H1 2021, driven by buyers headquartered outside Australia. The student housing sector has also seen increased appetite. There were bright spots in the retail sector too – large format and neighbourhood centres remained the preferred subtype, but there has also been renewed interest in large shopping centres and CBD retail.
David Green-Morgan, Head of Real Assets Research at MSCI, said: “Pockets of the retail sector have seen some robust demand but deal activity across the sector has dropped 28% in the first half of the year. Overseas investors have leaned much more to the office and industrial markets.”
In Q2 2022, offshore investors acquired just under $4.7 billion of commercial real estate, a 24% drop year-on-year. The declines have been driven by a pullback from investors outside of the Asia Pacific region to the tune of 65%, resulting in the lowest second quarter total from this group of investors in a decade.