Trading in major commercial investment property ticked over the $30 billion mark last financial year. By historical measures this is a solid result, with trading volume down just 6% on the previous year. Not surprisingly however, activity slowed in the second half of 2019-20.
The impacts of the COVID-19 pandemic has led to an uncertain future for the economy and for commercial property and as a result the second half of 2019-20 saw recorded trading volumes down 34% on the same period in 2018-19.
The office sector remains most popular, accounting for a higher than usual share of trading (62%) in 2019-20. This is a sign of long-term investor belief in office property, despite the present rise in vacancy and questions around the use of offices during the COVID-19 pandemic.
In contrast, with long-term uncertainty around the future of retail, trading in this asset class accounted for just 22% of trading volume (it’s typically around 30% and regularly more). The strongly-performing and tightly-held industrial sector was trading around its usual share at 16%.
By property location, New South Wales dominates, accounting for 44% of the sales last financial year. Higher prices there pushed volume totals further. This occurred at the expense of Victoria, which accounted for 19% of volume sold. Typically, the proportion of commercial property sold in Victoria is closer to 25%, a sign buyers were starting to become nervous about an over-heated/over-supplied property market.
Offshore buyers continued to make a substantial contribution to commercial property acquisitions in 2019-20, accounting for 30% of the total through the year; historically, this is well down on the peak of 44% recorded in 2015-16. Asian investors were again dominant, led by long-term investors in Australia, the Singaporeans, accounting for a 13% share of acquisitions by volume, the USA at 6% and Hong Kong at 5%. The much talked-about Chinese investors represented just 2% of acquisitions in the commercial property markets during the last financial year, notably down from the peak of their activity in 2015-16.
Looking forward, the second half of a calendar year is normally the most active. Investors are now working on acquiring assets at lower prices in the wake of the economic impacts of the COVID-19 pandemic. When new price points start to emerge, we expect trading activity to lift substantially; and this is likely in the next six months.
At this stage, stock on the market is more limited than in recent years, so major transactions are likely to emerge from off-market deals.