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A new report showed that commercial property transactions fell in the latest quarter, as rising rates and economic uncertainty take a toll on investment.
The MSCI Real Assets’ latest Australia Capital Trends report showed commercial transactions fell by 33 per cent to $14.2 billion year on year to the June quarter — ending a record run of three record quarters of growth.
For the year so far, transactions total $28.8 billion, representing a 12 per cent decline over a 12-month period, according to the data house.
Benjamin Martin-Henry, the head of Pacific real assets research at MSCI, said that while that relative slowdown may simply be the result of the market returning to normal following last year’s deal-making frenzy, it may also point to the start of a downturn due to factors affecting investor sentiment.
“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,” he stated.
The report — which analysed data from the office, retail, industrial, hotel, apartment and senior housing properties and portfolios valued at $1 million or more — showed the rate of decline varied among core sectors.
Data showed that the industrial sector bore the brunt of the declines, with transaction volume falling by 63 per cent to $4.1 billion in the second quarter from the same period last year.
While retail fared significantly better than industrial, deal volume in the sector also edged down by 28 per cent to $3 billion during the same period.
Meanwhile, the trade in office buildings increased by 7 per cent to $5.4 billion — indicating that central business district office markets may be on the precipice of a revival as investors take into account that workers and students are making their way back to capital cities.
The report highlighted other positives in the commercial market, as deal-making picked up during the first half of 2022 in several non-core sectors.
Compared to the first half of 2021, the hotel sector posted an 84 per cent increase in deal-making activity during the first six months of 2022. The student housing sector has also seen increased appetite.
There were strong performers in the retail sector as well. Data showed that large format and neighbourhood centres remained the preferred subtype, but there has also been renewed interest in large shopping centres and CBD retail.
“Pockets of the retail sector have seen some robust demand, but deal activity across the sector has dropped 28 per cent in the first half of the year. Overseas investors have leaned much more to the office and industrial markets,” according to David Green-Morgan, MSCI’s head of real assets research.
Over the second quarter, offshore investors acquired just under $4.7 billion of commercial real estate, indicating a 24 per cent drop on an annual basis.
The report noted that declines had been driven by a pullback from investors outside of the Asia-Pacific region by 65 per cent, resulting in the lowest second-quarter total of transactions from offshore investors in 10 years.
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