Office and retail sales deals the lowest for a decade
Deal activity for commercial property is at its lowest ebb in over a decade, with only $7 billion worth of assets changing hands in the second quarter, reflecting the stalemate between what the price sellers want and what buyers are willing to pay.
The volume of sales levels is now the lowest since the global financial crises, prompting analysts to call it a worrying time for the market with the slowdown “being more entrenched”.
Office tower sales are falling to a worrying level.Credit: Louie Douvis
In the last three months alone, the rate of sales across all sectors of office, industrial and retail assets collapsed by 61 per cent at a time when interest rates are high and listed managers are in the midst of finalising their full-year accounts.
The latest Australia Capital Trends report from MSCI Real Assets shows that sales were at the lowest level since 2011 for a second straight quarter. Deal count also dropped by close to half compared to the five-year average, while office sales fell below the retail sector and the build-to-rent/apartment market.
While there are many smaller assets being offered, big ticket deals such as the long-awaited sale of Mirvac and Blackstone’s half stake in 60 Margaret Street/MetCentre in Sydney is still being completed.
Overall volumes haven’t seen declines of this magnitude since the slump induced by the Global Financial Crisis.
Ben Martin-Henry, head of Pacific Real Assets Research at MSCI
The sale of a half stake in Sydney’s tallest office building, the $2 billion Salesforce Tower overlooking Circular Quay, is also on pause with bids said to be about 10 per cent lower than were being asked.
One major sale was by Dexus of its 44 Market Street tower in Sydney at a 17 per cent discount to an overseas buyer. In Melbourne, 12 interest rate rises by the Reserve Bank over the past 13 months has hit buyer sentiment, with just one $30 million office sale recorded this year.
Benjamin Martin-Henry, head of Pacific Real Assets Research at MSCI, said it’s a “worrying sign for the market as the slowdown is becoming more entrenched”.
“Overall volumes haven’t seen declines of this magnitude since the slump induced by the GFC. Still, in times like these opportunities are out there, but only at the right price and that’s the biggest sticking point at the moment,” Martin-Henry said.
He said the impact on lending rates for investors have muddied the outlook for pricing, leaving many buyers and sellers at stalemate.
Colliers data shows that after a hiatus in sales transactions in the first three months of the year, three assets totalling $499.6 million occurred in the June quarter “providing some, although limited, evidence of a pricing reset”.
“Pending transactions due to finalise over 2023 will provide further evidence of where values will ultimately land and alongside more certainty around debt pricing by year-end, will increase investor confidence,” Colliers research said.
Sales of industrial, office and retail assets have all slumped, although the industrial sector took the lion’s share of investment in the first half of the year, with 33 per cent of total acquisition volume across all property types.
In the first significant write-down in values for offices, the MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index also showed that annual capital growth for office funds was minus 7.9 per cent in the second quarter, contributing to a total return decline of minus 4.4 per cent.
David Green-Morgan, global head of Real Assets Research at MSCI, said the new MSCI Price Expectations Gap model – which estimates the amount sellers would need to shift their price expectations to bring transaction activity back to “normal” levels of liquidity – shows that Australian offices have one of the widest gaps of any of the markets the firm covers.
“The gaps in pricing positions in Australia’s largest sectors and markets, which are around 30 per cent, contribute to its status as one of the worst performing markets globally,” Green-Morgan said.
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