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Commercial Sales Hit Record $40bn Over 2019

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Demand for Australia's commercial property has shown no sign of abating with global money managers "more attracted than ever" to the tightly-held sector.

According to preliminary data from CBRE, a series of trades in landmark office towers has helped propel the tally in commercial real estate deals for the 2019 financial year to $38.6 billion, ahead of last year's record high of $37.8 billion.

Driving the sale of big-ticket commercial properties are record low vacancy rates in the Sydney and Melbourne office markets, currently underpinning growth in rents.

While office yields remain low, they remain more appealing for investors compared to bond yields, which have fallen significantly over 2019.

CBRE Pacific head of capital markets Mark Coster said it was likely that sales over 2019 would hit a new record despite a marked drop in the number of transactions, down 10 per cent on the previous year, and down 30 per cent down on the five-year average.

“More than any other year, 2019 was typified by large trades across almost every asset class [office, retail, industrial and hotel],” Coster said.

“Rental growth prospects are strong across most sectors and investors are therefore looking to leverage that upside, which has slowed the availability of product coming to market.”

▲ Charter Hall’s Prime Office Fund and its DVP wholesale partnership have formed a joint-venture that now owns Chifley tower in co-ownership with GIC.
▲ Charter Hall’s Prime Office Fund and its DVP wholesale partnership have formed a joint-venture that now owns Chifley tower in co-ownership with GIC.


Larger deals dominated 2019 with 660 transactions valued above $5 million in the retail, office, industrial and hotel sectors.

Bullish property fund manager Charter Hall saw a series of high-profile purchases over 2019, with a $900 million half state in Sydney's Chifley Tower in August the highlight.

Scentre Group’s sale of 100 Market Street and 77-85 Castlereagh Street to Blackstone for $1.52 billion as well as QIC’s sale of the 80 Collins Street precinct to Dexus for $1.476 billion were amongst Sydney’s largest-ever commercial transactions.

Cromwell Property Group landed the largest property investment in Brisbane this year, buying a George Street office block from US private equity group Blackstone and German group HSBC Trinkaus for $525 million.

Taiwanese-backed developer Shayher Group also parted with $395 million for Brisbane’s landmark Q&A Centre.

Despite big-ticket office transactions, CBRE noted that retail sales volumes came in at $7.4 billion, down 25 per cent on 2018, with the number of transactions down 37 per cent.

A total of $6.9 billion in industrial sales across 241 deals, also saw a contraction of 16 per cent on pervious year's figures.

The hotel sector however bucked the trend and recorded a 20 per cent increase in the number of transactions.

▲ In August ASX-listed real estate investor and manager Cromwell Property Group purchased 400 George Street, an A-grade Brisbane tower.
▲ In August ASX-listed real estate investor and manager Cromwell Property Group purchased 400 George Street, an A-grade Brisbane tower.


While economic growth is expected to slow over 2020, it is expected to remain resilient and supportive of the commercial property market, with sustained employment growth underpinning demand and absorption.

“We expect most asset classes to perform well in 2020 and that continued cap rate compression will drive returns on office and industrial assets,” Coster said.

“We expect there to be some large, high-quality trades in the retail market as investors gain confidence around rents and the relative returns available.

“We also expect to see an increased level of activity in the alternatives space, including activity in the build-to-rent sector.”

Mirroring the sentiment, the Knight Frank Outlook 2020 report released last month, has tipped the commercial and industrial sectors to achieve double-digit capital growth.

Knight Frank also expects significant further yield compression during 2020 and 2021, with Sydney's office property yields to decline over the next two years to 4.1 per cent.

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Article originally posted at: https://theurbandeveloper.com/articles/commercial-sales-hits-40bn-2019