While trading volume in commercial property in 2020 was down 34 per cent on the previous year, early signs are encouraging for a lift in activity through 2021.  

Our data shows 60 major income-producing properties added to national listings being advertised on the market for sale in January and February. This is up from 49 added to the list during the same time in 2020.

Commercial property coming on the market: 

January & February, 2018 – 2021

Year
Total no. of properties added
Total $ added*
Largest sector**
2018
68
$4.2b
Office & Retail 48% each
2019
48
$2.9b
Office 81%
2020
49
$2.5b
Retail 58%
2021
60
$1.9b
Retail 50%

Source: CBA

* based on price estimates at the time, not all properties have a price estimate
** proportion based on price estimates

Through the middle of 2020, owners were focused on managing assets in the face of the lockdowns and were uncertain whether values would hold up. The net impact was a drop in properties reaching the market and the trading volume fell accordingly.

Yet investor demand for commercial property remained high throughout and is somewhat unsatisfied as activity starts to ramp-up in 2021.

The uncertainty about the future of the economy has now been answered by the strength of the National Accounts data released this month, and the defensive qualities of commercial property as an asset class remain largely intact. For commercial property investment, it’s game on.

The estimated price of assets which came onto the market for sale early in 2021 is lower than in previous years. They’re smaller assets which will appeal to private investors and will start to satisfy some of the pent-up demand; perfect to kick-start the trading year. But commercial property trading patterns traditionally run to a calendar year, so larger assets will hit the market and trade as 2021 unfolds.

2020 and the pandemic saw a reshaping of trading in different assets.

Demand (both tenant and investor) for industrial logistics facilities and warehouses was unprecedented, following a strong rise in online retailing. With high levels of trading activity, yields have firmed across most industrial markets and remain under downward pressure. Industrial sales in 2020 accounted for twice the share (29 per cent) it would in most years and we expect this level of demand to be maintained through 2021.

While the office sector took a big hit in 2020 as tenants downsized to reveal the highest vacancy rates in 30 years, growth in employment now underway will inevitably set the sector off on the (for some, long) path to recovery in 2021. We expect investors to weigh more heavily into the office sector once again this year.

For the beleaguered retail sector, the biggest impact of coronavirus has been in the largest assets, while non-discretionary and home-maker focused retail property have out-performed. Some of the longer-term structural changes impacting the retail sector are likely to re-emerge through 2021, leaving investors to tread selectively through the large amount of stock likely to come to the market.

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