Commercial property sales reach $16 billion, but uncertainty remains

by Mackenzie McCarty03 Jul 2013

Investment activity in the Australian commercial property sector is continuing to strengthen, with new CBRE data highlighting that June quarter 2013 sales were up 24% on the previous corresponding period.

Sales for the 2012/13 financial year totalled $16 billion, a rise of 12% on 2011/12. The data takes into account all office, retail and industrial sales valued at over $5 million.

CBRE's head of research, Australia, Stephen McNabb, says the year was characterised by an increase in the number of larger deals, as highlighted by the fact that 423 transactions were reported during the period, down 12% on the 2011/12 financial year.

"This divergence is consistent with a market in which an increasing volume of institutional funds have been allocated back to higher yield asset classes," says McNabb.

Think Tank director, Jonathan Street, tells Australian Broker his commercial lending business can relate to the apparent upswing over the past 12 months, but maintains some reservations.

“Our experience would correlate with that. We’ve certainly seen an uptick over the last quarter in purchases. But, equally, we’re seeing a lot of purchases below the $5m mark going to self-managed superfunds.”

“I think, largely, it’s driven from the easing in monetary policy. With lower interest rates, it certainly makes the relative yield on commercial property much more attractive for investors,” says Street. “But equally, it’s much easier for owner-occupiers to start considering buying their own premises with the lower cost of borrowing.”

CBRE national director, capital markets, Josh Cullen, says domestic investors are driving activity higher, with transactions involving local buyers up 30% in the 2012/13 financial year compared to the previous corresponding period.

"We are seeing a strong domestic appetite, predominantly for core stock," says Cullen. "We expect this increased appetite to continue through the remainder of 2013, although there is likely to be a shift toward non-core stock as core opportunities diminish."

Street says overseas investors are having an impact on the commercial property market, but that they tend to head towards the top end.

“We generally tend to deal in the smaller side – the overseas investors generally are operating more in the marquee buildings, so much more the bigger end of town,” he says.

While Street believes the outlook for commercial property is ‘largely positive’, he says much will depend on the outcome of the election.

“I think a lot depends on what happens with the federal election – whenever that might be. But I think, generally, the SME community is looking forward to getting on with business and trying to invest and grow - but there are some uncertainties still acting as head winds.”