Australian commercial property investment declined 33% year-on-year to $14.2 billion in the second quarter of 2022, according to MSCI Real Assets.  

It comes after Australian commercial property deals totalled $11.7 billion in the first quarter of 2022, an all-time high for the Q1 period.  

Across the core commercial sectors, industrial property fared the worst with transaction volume in the second quarter slumping by 63% to $4.1 billion, compared to a year earlier. 

Office investment increased by 7% to $5.4 billion, while retail sector deals declined by 28% to $3 billion. 

SOURCE: MSCI Real Assets

“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,” Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI, said.   

“Smaller investors are more sensitive to increases in the cost of capital so the recent interest rate rises may have curbed deal flow.” 

MSCI Real Assets found that 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 painted 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, the company said.  

However, hotel deal volume was 84% higher during the first half of 2022 than the same period last year, driven by buyers headquartered outside Australia.  

MSCI Real Assets found that the student housing sector had seen increased appetite, while there were aslo bright spots in the retail sector too. 

“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,” David Green-Morgan, Head of Real Assets Research at MSCI, said.