As Australia commercial real estate transaction volumes continue to hover around record lows, private investors appear to be the only ones still buying and they now account for the majority of transactions.
New MSCI Real Assets research showed private investors accounted for 57%, or $5.5 billion, of total transaction values in Australia during the first five months of 2023.
It was a jump from the 40% share over the same period in 2022.
By comparison, listed players made up only 11% of total volumes, or about $1 billion, to mark an 80% decrease year-on-year.
“We are witnessing a pattern reminiscent of previous slowdowns like the Global Financial Crisis (GFC) and during the Covid-19 pandemic,” said Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI.
“One explanation may be the inherent opportunism of private investors. During periods of market turbulence, they often seek out opportunities when more cautious institutional investors remain on the sidelines.”
For example, private investors have shown a strong preference for the retail sector this year, which accounts for approximately 32% of their allocation as at end-May, despite other investor groups largely avoiding it.
While the total volume registered by private investors in the first 5 months of 2023 was still a decline of 53% year-on-year, private investors are proving relatively more active than their counterparts.
Besides listed players pulling back sharply as mentioned, cross-border institutional investors are also largely absent.
A similar trend had emerged in the wake of the GFC in 2008, according to MSCI.
Private investors reduced acquisition levels by about 30% compared to 2007 and listed players cut their acquisitions by approximately 80%.
Institutional investors — both local and from overseas — almost entirely withdrew from the market (and stayed away in the aftermath) during the period.
In terms of recovery, it took private investors four years to return to pre-GFC (circa 2007) investment volume levels, whereas listed players took six years.
Institutional cross-border investors did not return to 2007 levels until 2021. Domestic institutional investors did not reach 2007 levels until 2013 and their cross-border counterparts still have not recovered to those levels, even though they came close in 2021.
“What might we infer about future buyer activity from historical trends? If patterns are to be repeated, it wouldn’t be surprising to see several quiet years ahead for buyers other than private players,” Martin-Henry said.