Commercial property market going through adjustment phase

Commercial property buyers made $11.8 billion of purchases in the first nine months of 2023, according to JLL, well short of the activity recorded in 2022, when $29.2 billion of transactions occurred throughout the entire year.

Activity has fluctuated during 2023, with $4.3 billion of transactions in the first quarter, $3.5 billion in the second and $4.0 billion in the third.

By way of comparison, there were $9.6 billion of transactions in the third quarter of last year, representing a year-on-year decline of 58%.

Drilling down on the Q3 data, logistics & industrial volumes fell 38% year-on-year to $1.6 billion, office fell 77% to $1.2 billion and retail fell 29% to $1.2 billion.

JLL's Australasian Head of Capital Markets, Luke Billiau, said buyers weren't seeing much value in the Australian commercial market right now.

“The fall in transactions since the beginning of 2023 is indicative of the pricing discovery in the market as a result of rapidly changing funding costs and a low-leverage environment relative to other global markets that prolongs this period,” he said.

That said, he felt Australia was well-placed to attract global capital, due to its growing population, economic resilience and increasing infrastructure investment.

Australia is well-capitalised relative to other countries

In the first nine months of 2023, foreign buyers accounted for 19.0% of commercial property transactions, down from 25.5% in the same period last year.

JLL's Head of Capital Markets Research, Andrew Quillfeldt, said overseas interest would be one factor that would drive investment activity in 2024.

“While the institutional real estate market in Australia is well-capitalised relative to other countries, we’re still expecting some capital recycling for sector reallocation purposes to drive asset sales,” he said.

“Industrial and build-to-rent are becoming even higher conviction strategies for many groups. Furthermore, some funds are likely to be looking to divest assets to fund development and to de-lever to maintain conservative gearing.”

With buyer activity subdued, there might be an opportunity to buy a quality commercial asset for a low price. If you’d like to take action, contact me and I’ll arrange the finance for you.

Published: 30/10/2023

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