Where is the capital flowing in commercial transactions ?
After a landmark year in 2021 of commercial transactions , 2022 has seen a distinct slowdown , given the rapid changes in interest rates and rising bond yields putting the brakes on many financiers and investor confidence . Australia , however , does continue its reputation as a safe haven for investment given its economic and political stability , making it an attractive market to invest in for all .
Australian commercial transactions were at their highest during quarters two to four in 2021 , with these periods alone representing $ 83.7 billion in sales , bringing the calendar year sales volume up to $ 96.7 billion . The real estate investment trust ( REIT ) and listed spaces had the greatest accumulation of assets , with over $ 7.8 billion in net acquisitions , while institutional and offshore activity were also robust . Taking advantage of the rapid price rises and lowering investment yields , private buyers jumped out of the market , disposing of more than $ 40 billion worth of assets . However this segment also represented competitive investors . Buyers , particularly private syndicates and first time investors looked to diversify their investment portfolio . Despite this , the mismatch still saw more than $ 8 billion in investment leave the private sector .
Fast forward to 2022 and fundamentals are changing . Through to the end of August 2022 , $ 48.6 billion has been invested in the commercial property sector . New South Wales was the location of choice to invest in , accounting for 43.3 per cent , and its share was up five per cent on last year ’ s results . Victoria similarly has increased its holdings on 2021 results , now at 27.8 per cent , while markets such as Queensland and Western Australia , which were attractive last year due to their strong population gains , economic growth and future potential , have now slowed .
Looking at asset classes , the confidence in office assets has returned while industrial sales have now moderated after a standout 2021 , while retail , hotels and medical / aged care have all seen uplift in activity this year too .
Importantly , the flows of capital are at a significant turning point . The big buyer of 2021 , REITs , retreated rapidly this year , selling more than they ’ re buying . While both institutions and offshore players continue to sell down assets , they continue to grow their commitment to Australian commercial property . Some international buyers in particular have growing confidence in our local market , with the USA and Germany being the regions representing growth in investment this year . Conversely , Singapore , China and Hong Kong have decreased their economic commitment to Australian property significantly .
Private buyers make up a sizeable proportion of our commercial property universe . The changing dynamics of this buyer and seller group is indicative of their understanding of the cyclical nature of our property market . Capitalising on strong yields and increases to capital returns , together with availability of finance , meant these investors were quick to sell in 2021 . While this trend has continued again this year , the extent has been far less . As market conditions move , we ’ re likely to see private investors become net purchasers , capitalising on emerging opportunities and stress of owners who may have purchased at peak rates last year . Similarly , as bond rates grow , the spreads will become increasingly unsustainable for some property owners which will benefit the private sector and their ability to move quickly when opportunities present themselves .
63