Australian commercial property investment reached $6.5 billion in the first quarter of 2022, marking the strongest Q1 result on record.
According to Cushman and Wakefield, Q1 2022 investment volumes surpassed the previous record of $6.3 billion in 2018.
“Following a record Q1, 2022 is looking increasingly positive for Australian commercial real estate markets, as local investments continue to provide attractive returns compared to many fixed-interest and overseas investments,” Cushman & Wakefield Head of Research Australia and New Zealand John Sears said.
“However, bond yields increasing from ultra-low levels in 2020 and rising interest rates are likely to put pressure on funding costs and could crimp demand, as well as investors becoming increasingly uncertain of the geopolitical environment.”
Click on the below links to read more about the significant commercial property deals of Q1 2022.
Significant commercial property deals in Q1 2022
|Atlassian Tower, 8-10 Lee Street (67%)||Sydney||Dexus||Atlassian||Office||$840m|
|101 Miller Street & Greenwood Plaza||Sydney||CapitaLand Integrated|
|Nuveen Real Estate||Office||$422m|
|Casuarina Square||Darwin||Sentinel Property Group||GPT||Retail||$397m|
|Blue Tower, 12 Creek Street||Brisbane||Marquette Properties||Dexus||Office||$391m|
|Parliament Square||Hobart||Spirit Super||Citta Property Group,|
Qualitas, Schwartz Family
|Grand Plaza Shopping Centre (50%)||Brisbane||EG Funds Management||Invesco Australia||Retail||$215m|
|West Village||Brisbane||Centuria Capital Ltd||Sekisui House||Retail||$202m|
|Centuria Prime Partnership|
|National||Morgan Stanley||Centuria Capital||Other||$189m|
Australian office investment in Q1 2022
Colliers Head of Capital Markets Adam Woodward said the momentum of the occupier market was underpinning high demand for office investment in Q1 2022.
He said the post-COVID environment had seen a shift in the typical workforce, with occupiers adopting space in new ways, including an increased focus on quality amenity, flexible space, health and wellbeing, and pioneering technology.
The ‘flight to quality’ or ‘flight to experience’ will see tenants looking to occupy space in higher quality A grade/Premium assets, or new developments, to satisfy their requirements and ensure the return of staff to the office.
This is likely to increase pre-commitment activity and increase the spread between A-grade and B-grade assets.
Woodward said domestic investment would continue to grow, with major institutions and superannuation funds aiming to increase their real estate portfolios in the coming years.
Australian superannuation funds will be particularly active in investing across asset classes, including office and alternatives.
With the weight of unsatisfied capital over the last 24 months, Woodward said it was expected that more vendors would opportunistically look to sell in 2022, significantly increasing the transaction volumes recorded compared to prior years.
Australian industrial and logistics investment in Q1 2022
Gavin Bishop, Managing Director of Industrial and Head of Industrial Capital Markets Australia at Colliers, said the momentum from 2021 had continued into 2022 with occupier demand remaining well above the long-term average.
Vacancy rates fell further and currently average 2.3% in Q1 2022, down from 2.7% in Q4 2021.
The key thematic to emerge over the past six months within the sector was the increase in rents which was expected to be the primary driver behind asset performance over the next five years, Bishop said.
In Q1 2022, national weighted average prime rents increased by 2.3%, as well as year-on-year (YoY) growth of 9.8%.
Bishop said infill markets had outperformed given the lack of leasing availability and strong demand from occupiers looking to position themselves near their end consumers.
Rental growth in eastern coast infill markets reached almost 12% over the 12 months to Q1 2022 which was almost four times the 10-year average of 3.1% per annum.
He said land values had underpinned the investment thesis in many recent acquisitions, given the significant growth recorded.
Australian retail investment in Q1 2022
Lachlan MacGillivray, Managing Director, Asia Pacific Retail Capital Markets at Colliers, said the first quarter of 2022 had seen a clear increase in capital allocated for well-located retail investments, driven by Australia’s growth prospects and relative value attraction.
He said investors favoured local centres which were heavily weighted towards essential services tenants (supermarkets, pharmacy, fresh food and takeaway food) in 2021, and the predominant focus for investors was within the neighbourhood asset class.
As shopping habits return to normal, the trend of shopping locally was persisting.
MacGillivray said they expected town centres anchored by supermarkets and complemented by a specialty tenancy mix focused on daily essentials to perform strongly.
Security of income underpinned by long majors WALE and low CAPEX requirements were also key criteria for investors.
He said they were now seeing yield compression across most asset classes, including sub-regional.