Commercial RE deal activity down in Q4

Oksana Patron

1 February 2023

Looming economic pressures and unsettled pricing outlook contributed to lower transaction volume across commercial property deal activity in Australia in Q4 2022 which decreased 66% to $10.2 billion compared to a prior year.

This means that the fourth quarter represented less than one-fifth of total 2022 deal activity, compared to a typical share of about one-third, according to the Australia Capital Trends report by MSCI Real Assets.

Although all sectors across commercial property saw a drop in deal activity greater than 50%, the retail showed the largest fall.

What is more industrial deal volume was also lower in 2022 as it fell by 35% to $20.9 billion, with only 20 large portfolio deals totalling $3.3 billion being settled against to the 37 in 2021 which totalled $10.5 billion.

Following this, the office sector registered a shallower decline in activity as it was down only 10% to $23.4 billion compared to the previous period.

At the same time, yields in the office sector began to adjust to increases in the cost of debt, mostly in Sydney and Perth,  and the office specialist funds recorded negative capital growth in Q4, according to the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index.

On the more positive note, the hotel and pub sectors experienced a more optimistic year as investor appetite for the hotels surged, with Baring PE Asia spending up to $3.4 billion, while in the pub sector investors bought up to $3 billion of assets.

For the year as a whole, transaction activity slipped 25% versus 2021 to $63.3 billion. Still, the 2022 total was nearly on par with 2019, which was the second-strongest year on record behind 2021.

Benjamin Martin-Henry, Head of Pacific Real Assets Research at MSCI, said that although activity was widely expected to moderate in 2022, after a blistering pace in 2021, the magnitude of the slowdown was due to wider economic pressures including the slew of interest rate increases to combat inflation.