Commercial property deals stuck at 2011 levels

Sales of local commercial property assets have dropped to the lowest levels since 2011 for the second straight quarter, says MSCI.

Latest data from MSCI shows transaction volumes in Q2 were down 61% year on year, coming in at $7 billion. This was down 49% versus the five-year average.

Deal count was also down by about half compared to the five-year average, it said.

Sales were down across industrial, office, and retail assets for the first half of 2023. In Q2, office sales fell below retail and the build-to-rent/apartment market.

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While down 62%, the industrial sector saw the most investment at $2.4 billion. This was followed by retail, which saw $1.8 billion, and office at $983 million - the lowest quarterly result since 2009. It noted that the Sydney market, typically most traded, was fifth most traded in the first half.

"In the first significant write-down in values for offices, the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index showed that annual capital growth for office funds was -7.9% in the second quarter, contributing to a total return decline of -4.4%," MSCI said.

It added that the outlook for pricing has been muddied by interest rate hikes and the subsequent impacts.

"This is a worrying sign for the market as the slowdown is becoming more entrenched. Overall volumes haven't seen declines of this magnitude since the slump induced by the Global Financial Crisis. Still, in times like these opportunities are out there, but only at the right price and that's the biggest sticking point at the moment," MSCI head of Pacific Real Assets Research Benjamin Martin-Henry said.

Of note, the BTR sector continued to grow in the quarter, seeing $1.4 billion in sales, largely driven by offshore investors. Overseas buyers accounted for 23% of deals in the first half; the 10-year average is 29%.

"Acquisitions by offshore investors picked up in the second quarter; an encouraging sign after such a poor start to the year. Where they are deploying capital is interesting as well: they are shying away from offices, which have long been the preferred sector in Australia, and focusing more on the hotel and BTR sectors," Martin-Henry said.