The office sector has reclaimed its status as Australia’s most traded commercial property asset class as higher interest rates put a brake on overall transaction activity in 2022.
Preliminary CBRE data shows that $35.9 billion in office, industrial, retail and hotel assets changed hands this year, down 29% on last year’s $50.5 billion sales tally.
The office sector took the top spot, with $15.2 billion worth of towers traded, more than double the tallies in the industrial & logistics and retail sectors at $7.3 billion and $7 billion respectively.
While some transactions are likely to conclude in the next fortnight, the data highlights a much-evident pause in market activity in H2 2022.
CBRE’s Head of Capital Market Research Tom Broderick said, “While transaction activity in the first half of 2022 was in line with previous years’ averages, there has been clear evidence of a slow-down in the second half. In a higher interest rate environment, the market has returned to a price discovery phase, which has caused deal activity to drop.”
CBRE’s Pacific Head of Capital Markets – Office Flint Davidson noted the challenges in transacting, particularly in the second half, had been evident in the amount of withdrawn product.
“Typically, the bid-ask spread has been around 10% which has meant several transactions have failed to materialise and this is reflected in sales volumes. Generally, this hasn’t been due to a lack of buyer interest, it’s purely pricing alignment,” Mr Davidson said
More certainty is expected in the first half of next year when interest rates are likely to stabilise, according to Mr Broderick.
“More deal evidence is also starting to come through, which could provide vendors and buyers with added comfort about the new pricing benchmarks across geographies and sectors,” Mr Broderick said.
By sector, office sales activity was 16% lower than last year, while industrial & logistics deals dropped by 61% off a high 2021 base and retail activity declined by 38%.
The only rise in volumes was recorded in the hotel sector, with Blackstone’s purchase of Crown Resorts pushing total hotel sales to $6.4 billion.
Blackstone was among a contingent of offshore buyers responsible for a total of $11.9 billion in commercial property transactions in Australia in 2022 (representing 33% of the overall national sales tally).
However, total offshore inflows dropped by 32% compared to last year – similar to the fall in the purchasing activity of domestic groups. Also notable, as international borders opened, was a decline in deals involving offshore capital partnering with local fund managers, which accounted for just 23% of offshore purchases, compared to 49% in 2021.