With the COVID-19 pandemic dragging on, so is its impact on trading of core commercial investment property. Sales volumes, at a little below $15 billion over the first nine months of 2020, are weak, down 38% on the same period in the previous year.
Sales volumes of office property and retail property have been hardest hit. Although the office sector has accounted for a little under half of the commercial property sales in 2020 so far, compared to calendar year 2019, sales volumes are currently 70% lower.
Not surprising given the retail environment, retail property sales volumes have also weakened, so far at levels only half those of 2019. Trading in this asset class has accounted for 22% of trading volume in 2020.
Although there’s a quarter to go, limited stock on the market and no near-end in sight for the pandemic suggests office and retail property sales volumes will be well down on 2019 by year-end.
It’s a different story for industrial property though, which has actually seen trading volume already rise above 2019 levels in absolute terms. Its share of commercial property trading in 2020 has increased considerably, currently accounting for about a third of sales in 2020 (over the past 10 years it’s averaged about 15%). Investors have been attracted to the sector’s stronger performance, driven by renewed demand for logistics space resulting from the pandemic-induced e-commerce boom.
By property location, both New South Wales and Victoria account for the largest share of commercial property trading at 29% each. Interestingly, at this level New South Wales’ proportion is well down on historical levels while Victoria’s is slightly higher. Trading in Queensland as a share of the total so far this year is next largest at 18% (on par with long term historical levels). Sales in WA have accounted for 7% and SA’s share is at 4% so far in 2020.
Reinforcing the “safe haven” characteristics of Australian commercial property, offshore buyers have continued to make a substantial contribution to commercial property trading. So far in 2020, offshore buyers have accounted for about a third of acquisitions, driven by Singaporean investors (almost half of this offshore buyer activity). Buyers from Germany and the USA are also active, accounting for 24% and 18% shares of offshore buyer acquisitions by volume.
Overall, history shows this time of year is normally more active in terms of acquisitions but there is a lot of ground to make up if 2020 is going to finish solidly. Properties on the market, although picking up a little over the past few months, is down on same time in recent years. Attractive for the many buyers still actively seeking to acquire, is that yields (and therefore prices) have shown some softening, particularly in the retail and office sectors. With the impact of the pandemic continuing and the lower price points emerging, trading activity is expected to lift into 2021.