Australian commercial real estate deal activity slid further in the third quarter of 2022, as the pressures of rising interest rates, surging inflation and an uncertain economic outlook weighed on investors.
MSCI Real Assets found the volume of completed transactions fell 24% from a year earlier to $16.6 billion.
This followed a year-on-year decline of 19% in the second quarter.
Deal activity in the industrial market posted the sharpest year-on-year decline among the core property sectors.
Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI, said the market had entered a period of change.
“Last year was a record year for Australia, so deal activity comparisons may feel a little harsh, but with the economic outlook and investor confidence slipping, it’s clear than investment momentum has paused,” Martin-Henry said.
“Yet, looking at more long-term trends, commercial real estate is still trading above averages.”
In the industrial sector, the large portfolio deals which took the sector to record levels of activity in 2021 have been largely absent in 2022.
For the first nine months of this year nine deals took place, compared to 27 for the same period last year.
The more pessimistic outlook for e-commerce spending and the impact on future occupier demand weighed on investors.
As a result, yields for industrial real estate in Sydney have recorded expansion — albeit marginal — for the first time in four years.
Despite continued debate about the future of the office sector and the ‘new-normal’ working environment, investment in office buildings was relatively strong.
Deal volumes in the third quarter fell just 10% from a year ago and were flat for the first nine months of the year. However, yields in the sector have expanded marginally.
In the Sydney market, yields moved out for the first time since early 2020.
In the retail sector, deal volumes fell 41% in Q3, and for the first three quarters of the year were down 18%.
The picture for yields was mixed. Yields for city centre, large format, and big box retail assets compressed; but at a slower pace than the prior quarter.
Yields expanded for subregional, neighbourhood and regional shopping centres.
In one of the most significant cross-border and office transactions of third quarter, Singapore’s GIC agreed to acquire 50% of 555 Collins Street in Melbourne in a forward sale for $750 million.
Hong Kong-headquartered Baring PE Asia also acquired the Hilton hotel in Sydney for $530 million.
Cross-border investors spent $4.5 billion on Australian commercial property in Q3, on par with the same period last year.
Conversely, domestic investors deployed 30% less capital than in Q3 2021.
“Australia is very much in the sights of global investors,” David Green-Morgan, Global Head of Real Assets Research at MSCI, said.
“U.S. and Singaporean investors have led the way in 2022 and there’s been continued interest from elsewhere.
“Despite overall volumes dropping in recent quarters, Australia remains one of the most liquid and transparent markets in the region.”