Commercial property sales in Australia fell to the lowest level in more than a decade at the start of 2023, as increased debt costs and uncertainty over pricing continued to frustrate dealmaking.
New MSCI Real Assets research found that transaction volume for January to March 2023 slumped to $5.3 billion, the lowest level since Q1 2012.
The total was a 73% decline versus the first quarter of 2022, which was the strongest first quarter for sales on record.
With the drop, deal volume over the past six months was more than 25% below the average of the past 10 years.
With muted levels of deal activity, the process of price discovery has been challenging for buyers and sellers. This has in turn caused more restraint.
Buyers also have to contend with steeper financing costs after a long series of interest rate hikes by the Reserve Bank of Australia.
“There are a lot of products on the market at the moment, but pricing has become a real sticking point due to the soaring cost of debt,” said Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI.
“Couple this with uncertainty around economic fundamentals, and it’s no surprise that investors have been very subdued.”

Quarterly investment volume by deal type. Source: MSCI.
The industrial, office and retail sectors all tumbled in the quarter, each posting declines in sales activity of more than 70%.
Unlike the fluctuations in relative activity brought on by the pandemic, the current challenges facing the market are common to all sectors.
The one bright spot was the hotel sector, which posted an increase in activity and saw a record-breaking deal in Sydney: the Waldorf Astoria’s forward sale for $520 million represented a $2.4 million price-per-key, the highest on record.
The deal was also the biggest single asset deal of the quarter.
“Despite the hotel volume being dominated by one large forward purchase in Sydney, the positive sentiment around the sector following the reopening of borders and the economy continues and we have a number of transactions awaiting settlement,” said David Green-Morgan, Global Head of Real Assets Research at MSCI.
In the office market, activity fell 71% with only a handful of properties trading for over $100 million.
The biggest was Charter Hall’s settlement of the ATO headquarters in Canberra for $290 million.
Yields continued to expand, with CBD office yields increasing for a sixth consecutive quarter to hit 5.5%.
Yield expansion is now coming through in underlying valuations as the office sector recorded negative capital growth in The Property Council of Australia/MSCI Australia Annual Property Index in Q4 2022.
The explosion in industrial deal activity appeared to come to a stop.
Deal volume reached just $1.1 billion, an 82% decline on Q1 2022. Yields for warehouses moved out to 5.0%.
In Melbourne, deals were noticeable for their absence, while Sydney was home to the five largest industrial deals of the first quarter; the largest being Goodman Group’s acquisition of 2-8 Lanceley Place for $95 million.

Investment volume sector summary. Source: MSCI Real Assets
Despite the slowdown in transaction volumes, industrial performance has remained in positive territory in The Property Council of Australia/MSCI Australia Annual Property Index.
Retail sales dwindled to $1.5 billion and yields for most retail subtypes expanded further.
Large format retail yields, which had sharply compressed to a low of 5.5% in Q1 2022, moved up to 5.8% in Q1 2023.
The largest transaction in the quarter was the sale of the Forest Hill Chase Shopping Centre to The JY Group’s joint venture with HabenProperty Fund for $256 million.
The Forest Hill Chase deal was also the largest involving cross-border capital in the first three months of 2023.
However, overseas players acquired less than $0.5 billion of Australian commercial property in the quarter, or about 9% of total deal volume, representing a smaller portion of Australia’s transaction market than in prior years.
In 2021 and 2022 cross-border investors were behind 25% of the market, down from roughly 30% in the five previous years.