[+] Canary in the Coal Mine: Commercial Sector Downshifts

The commercial sector is off the boil. Deal volumes are down 24 per cent year-on-year in Australia as the market normalises, and even the firing industrial sector is cooling. While Sydney’s office market has remained resilient despite the pandemic, MSCI data points to a softening as yields expand for the first time since the global financial crisis in 2008, outside of a small move in 2020. “There are signs that the downturn is gathering pace … the smaller investor end-of-town has less capital to tap into, they can’t execute on their deals,” MSCI head of real assets research Benjamin Martin-Henry says. “This is the canary in the coal mine and something to watch out for. We’re in a period of flux. “Last year was a record year for Australia, so deal activity comparisons may feel a little harsh, but with the economic outlook and investor confidence slipping, it’s clear that investment momentum has paused. Quarter 4 might be one of the quietest we’ve seen in quite some time.” Year-to-date transaction yields ^ Source: MCI Australia Martin-Henry says prices have peaked across many of the asset classes and yields are expanding. But there are a few bright spots within the gloomy data, particularly a change of fortunes for the hotel industry. Martin-Henry says hotel values fell 19 per cent from the third quarter of 2019 to the first quarter of 2021 and have clawed back a small fraction since then. But the drop in values has presented an opportunity for investors to gain exposure in the sector. Deal volumes surged up to 175 per cent in the past year, he said. “There has been $1.5 billion in transactions in Sydney hotels, which is one of the strongest years on record,” Martin-Henry says. “There has been strong activity in the market … looking at more long-term trends, commercial real estate is still trading above averages.” The sale of the Sydney Hilton was the largest transaction. Hong Kong-headquartered Baring PE Asia acquired it for $530 million. Syrian billionaire Ghassan Aboud bought up the Rydges Sydney Harbour at The Rocks to add to his Crystalbrook Collection of hotels for about $100 million, which was about 23 per cent less than the original asking price. Hotel transaction and capital growth ^ Source: MCI Australia Martin-Henry says investors are returning to the CBD office space with volumes up 15 per cent on the five-year average. He says international capital has flowed through to the eastern seaboard. There has also been a significant uptick in volumes of sales in Canberra’s office market according to MSCI data, with Investa and Charter Hall acquisitions padding out the figures as investors return to the space after “a number of quiet years”. Alternative asset classes including healthcare are expected to lure more institutional investors looking to snap up opportunities within the sector over the medium term as they grapple with “FOMO” Martin-Henry says. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Canary in the Coal Mine: Commercial Sector Downshifts

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[+] Canary in the Coal Mine: Commercial Sector Downshifts

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