$33bn: Another record year for commercial property
The value of commercial property transactions reached record levels last year but the volume of sales is unlikely to be repeated in 2018, while yields could be set to move up.
Total deals in the sector rose 22% to a record $33 billion last year, according to research by Commonwealth Bank head of commercial property, strategy and research Kevin Stanley.
But after five years of strong turnover that has seen yields fall to eye-watering levels, Stanley expects that the yield compression is likely to stop and reverse.
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“After five years of above average trading I guess you stand back and wonder what’s left to be sold that hasn’t been sold in this cycle,” Stanley says. “That’s part of the reason why you would expect the sales volumes to step down a little from last year.”
Record yields could tighten further if stock hits the market that buyers think they can add value to and are willing to compete for, but “at some point that compression has to slow down and soften — that’s the way the cycle works,” he says.
If interest rates continue to rise in the US, investors could start to look elsewhere, he says. “You may find offshore investors have options elsewhere, and take some of the steam out of the market here.”
Last year, office property accounted for more than half of total sales value worth $19.2 billion, with retail property sales totalling $9.8 billion and industrial assets totalling $4 billion.
Stanley says there is still keen interest from investors in commercial real estate, particularly for assets to which they can add value or reposition.
Office landlords are benefiting from strong jobs growth in the services sector, with professional services firms, finance companies and communications companies taking up significant office space in Sydney and Melbourne.
The busiest state was NSW, which boasted 42% of all commercial property sold last year, followed by Victoria at 24% and Queensland at 19%.
Offshore investors spent almost $11.5 billion on commercial property assets, up 9% from 2016, led by Singapore, the US, China and Hong Kong.
Stanley says Australia’s strong population growth and labour market were giving confidence to offshore investors.
The most active buyers were unlisted property trusts and syndicates, with 26% of all deals, followed by listed property trusts at 24% and private companies and investors at 21%.
This article originally appeared on www.theaustralian.com.au/property.