The value of commercial property deals declined 61 per cent over the year as owners hold off selling through the pandemic, figures from Real Capital Analytics show.
According to the global data and analytics firm’s latest Asia Pacific Capital Trends report, sales of commercial property reached just $3.6 billion across the third quarter of the year.
The sharp decline follows a record year across 2019 in which a record $42.6 billion transacted on Australian shores, a 22 per cent increase in the value of transactions from 2018.
The trading volume of office properties, particularly in Sydney, fell dramatically. The amount of office space available for sublease in the city’s CBD is at record highs after surging 90 per cent in the last five months.
While a number of deals led by European groups closed across the year, other investors, most notably from the U.S. have been notably absent with capital into Australia retreating by 94 per cent compared with the average of recent years.
Real Capital Analytics Asia Pacific senior analyst Benjamin Chow said investment momentum had swung back to the domestic players in the third quarter as Australia’s international borders remained closed.
“While there are already signs of pricing easing in the retail sector, office yields have remained stubbornly low up to this point,” Chow said.
“All eyes will be on the sizeable pipeline of office deals that was built up around the end of the third quarter, and whether these pricing levels can hold out until the end of the year.”
The collapse in activity has seen CBD office vacancies rise sharply, most notably in Sydney and Melbourne.
Data from JLL Research shows the Melbourne vacancy rate jumped 8 per cent to 11.3 per cent and the Sydney vacancy rate rose 4.3 per cent to 10.2 per cent.
The Sydney CBD recorded a loss of 94,500sq m of net absorption over the quarter, while the city’s sublease availability increased to 130,000sq m, 2.6 per cent of total stock.
The Melbourne CBD, which has been particularly hard-hit by the pandemic disruption, recorded a negative net take-up of 70,000sq m over the quarter pushing office vacancy to 11.3 per cent, from a low of 3.4 per cent in the first quarter.
All while new and recently completed stock continues to come online. According to JLL, Melbourne and Sydney account for 66 per cent of all office stock completed since the beginning of 2010, around 1.09 million square metres and 760,000sq m respectively.
The pandemic has continued to accelerate the rift in sectoral trends, with the industrial sector playing out as the most positive market while office, retail and hotel properties slumped.
The industrial property sector, which has benefited from a surge in e-commerce-driven warehouse space from demand as more people shop online during lockdowns, saw deal volumes outpace office investments across the September quarter.
Sydney was found to be the most active Asia Pacific market for this industrial property in the quarter.
Significant industrial transactions during the September quarter included Dexus’ sale of six assets into its joint venture vehicle with GIC for $270 million, and Charter Hall purchasing the OIA Glass portfolio for $214.6 million.
Real Capital Analytics noted that sales of commercial property across Asia Pacific fell by 38 per cent in the third quarter of the year.
Sales across the major income-producing property types dropped to $35.6 billion, down from $45.2 billion in the second quarter of 2020 and $58 billion a year ago.