Property deals dwindle as investors turn wary
Deal flow in the commercial property market fell for the second quarter in a row, dropping 24 per cent year-on-year to $16.4 billion, in the clearest signal yet that major investors are moving to the sidelines in anticipation of a correction.
The third quarter slowdown comes on the heels of a 19 per cent pullback in the exchange of commercial real estate – office towers, logistics facilities, shopping malls – in the second quarter, according to MSCI Real Assets.
“The market has entered a period of change,” Benjamin Martin-Henry, MSCI’s head of Pacific real assets research said.
“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 that investment momentum has paused.
“Yet, looking at more long-term trends, commercial real estate is still trading above averages.”
Over the last several months, major property players warned of a stand-off in deal-making as the market worked through a potential reset in valuations, to take into account the impact from rising interest rates and strong inflation numbers.
Large portfolio deals in the industrial sector – such as the record $3.8 billion Milestone sale – which pushed last year’s tally to a record, have dropped away sharply this year. Over the first nine months, just nine portfolio deals have been struck compared to 27 for the same period last year. The volume of deals in the third quarter more than halved to $3.2 billion compared to a year earlier.
Office sector resilience
A more pessimistic outlook for e-commerce spending and the impact on future occupier demand may have weighed on investors too, according to MSCI Real Assets. Yields for industrial real estate in Sydney have recorded a marginal expansion for the first time in four years.
Investment in office buildings remained relatively strong, notwithstanding headwinds in the sector posed by economic uncertainty and the broad embrace of flexible working. Transactions in the third quarter fell 10 per cent to $7.9 billion from a year ago. Yields in the sector have expanded marginally.
In the retail sector, deal volumes slumped 41 per cent in the third quarter to $2.9 billion, and for the first three quarters of the year were down 18 per cent.
The picture for yields in the sector was mixed, according to MSCI Real Asset. Yields for city centre, large format, and big box retail assets compressed while those for subregional, neighbourhood and regional shopping centres, expanded.
