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New data has confirmed what many feared last year—commercial transactions were nowhere near the levels of 2022.
MSCI’s Real Assets data has shown that just $8.7 billion worth of commercial transactions were underaken in the fourth quarter of 2023.
For the year there were $40 billion in transactions, a decline of 47 per cent from the nearly $74 billion of 2022.
That drop was the worst decline in the market since the Global Financial Crisis in 2008 and the worst performance for a fourth quarter since 2011.
Work from home, remote work and hybrid work trends off the back of the pandemic have caused uncertainty as have tight economic conditions.
These conditions have lead overseas investors to pause with total asset sales for 2023 at just $10 billion, the lowest level since 2011 and a 62 per cent decrease from the $26.2 billion of 2022.
Investors are also looking for sustainability in assets and premium-grade quality, so many assets now need to be refurbished or renovated to meet that demand.
Many of those investing in Australian assets are from the Asia-Pacific region and the question of if interest in Australian assets will return remains.
Despite the downturn in Australia’s commercial sector in 2023, there was an increase in regional cross-border investment in commercial real estate in the region that reached a record high of 18 per cent in the third quarter of last year.
Cushman and Wakefield’s capital markets head, Asia-Pacific, Gordon Marsden, told the MIPIM Asia Summit in Hong Kong it was partially due to other investors being cautious.
“While global investors from outside the Asia-Pacific region and managers managing global capital are generally well placed with significant dry powder for deployment, they have recently moderated their pace of investment and become more selective in markets and sectors,” Marsden said.
“This has provided a window of opportunity for Asia-based investors to expand their regional footprint.”
He also noted that within the Asia-Pacific region itself, most investment came from Singapore and Hong Kong-based capital but that the 18 per cent record high was driven by Japanese outbound investment, which has now become the third largest source of capital in the region.
Outbound investment from Japan hit $US2.8 billion for the year to November 2023, three times the average for the previous decade.
“Japan’s low-rate environment has encouraged the country’s investors to seek opportunities with higher yield returns elsewhere in the region,” Marsden said.
Investors from mainland China have turned their focus inwards to local commercial real estate accounting for 96 per cent of the investment volume in the third quarter of 2023, another record.
Cushman and Wakefield’s capital markets head, Greater China, Francis Li, said many of the investors looking at China were large institutions that were also considering logistics and industrial assets.
“Large institutional investors comprising insurance companies, onshore PEREs, and banks and trusts’ investment arms; government platforms and SOEs; and end-user buyers particularly from the energy, finance and TMT sectors, are currently the largest investors in mainland China,” Li said.
“We expect this trend to continue in 2024 given the relatively low-rate environment for domestic capital and recent expansion of C-REITs to include retail properties, in addition to industrial, logistics and R&D assets.”
The retail sector has provided a few surprises as well, according to the MSCI data.
At the end of 2023, the gap between retail transactions and office transactions was just $200 million when over the past five years office transaction volumes have outstripped the retail sector by $10 billion.
Retail transactions totaled $9.8 billion for 2023, a 45 per cent decline compared to 2022.
What has helped the sector is significant repricing of assets and an increase in population, providing investors with confidence.
The industrial sector has also recorded a decline in transaction volumes with the total for 2023 hitting just $14 billion, a 44 per cent decrease from 2022.
This matches the average of $11 billion in transactions from 2010-2020 with 2021 and 2022 now clearly outliers with a total of $57 billion in transactions.
The commercial residential sector, which comprises purpose-built student accommodation and built-to-rent, hit a total of just under $3 billion.
That figure however represented an increase of 77 per cent compared to 2022.
Built-to-rent transactions totaled $2.2 billion, hampered mostly by the lack of built and operating assets to transact with many overseas investors keen on the asset class.
Those investors put in $2.5 billion into the commercial residential sector with $1.9 billion going towards built-to-rent.
