Australia’s Commercial Property Market: A Mixed Bag of Opportunities Amid Economic Challenges

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In a surprising turn of events, the commercial property investment market in Australia has seen a significant dip in 2023, according to a recent report by Michael Gerrity for World Property Journal. Based on new CBRE data, the total investment volumes fell by 50% to $8.8 billion in the first half of 2023 compared to the same period in 2022. This drop was most prominent in transactions over $100 million, which plummeted by 58%, while deals under $100 million saw a lesser fall of 36%.

Despite the broad decline, CBRE’s Head of Capital Markets Research, Tom Broderick, explained that the market’s smaller end had proved resilient. Broderick pointed out, “The smaller end of the market has been more resilient, with private buyers seeing the current conditions as an opportunity to buy assets while larger institutional groups are largely on the sidelines”. This sentiment was echoed by CBRE Pacific Head of Capital Markets Flint Davidson, who noted that “asset size is currently the single biggest factor determining buyer depth on Australian sale campaigns”.

However, amidst the economic gloom, Australia’s commercial property market has emerged as a bright spot, attracting continued foreign investment. Ryan Smith, writing for The Australian, points out that despite a tough economic period and a possible recession, international institutions and investment funds view Australia as a safe haven for capital. The Treasury data indicates a $4.1 billion increase in approved investment proposals in the December quarter, predicting that foreign spending is set to outstrip the previous financial year.

Fergal Harris, JLL’s head of capital markets for Australia, affirmed the attraction of the Australian market for global investors, stating, “We’re seeing very strong engagement from offshore capital building a case for investment, and we think that story will accelerate in the second half of 2023 when there is more clarity on where debt costs and valuations are likely to stabilise”.

Interestingly, there’s been a noticeable increase in purchases by Japanese investors in Australia, a trend that has been attributed to the country’s low interest rates. Ross Lees, Centuria’s head of funds management, also identified the Asian market, particularly Singapore, Korea, and Japan, as the probable biggest investment driver in the year 2023.

Looking forward, the market-watchers expect the initial hesitation, especially towards larger-scale assets, to recede over the next six months, sparking a gradual recovery. While Vanessa Rader from Ray White expects international investment to remain strong, she predicts that it may not reach the levels witnessed in previous years.

In conclusion, while there’s no denying that the Australian commercial property market has had a rough start to 2023, the overall market stability, political steadiness, and the increasing interest from foreign investors, particularly from Asia, paint a hopeful picture for the remainder of the year.

References:

Gerrity, M. (2023). Commercial Property Investment in Australia Dives 50 Percent in 2023. World Property Journal. https://www.worldpropertyjournal.com/real-estate-news/australia/sydney-real-estate-news/australia-real-estate-news-cbre-h1-2023-in-and-out-report-australia-2023-commercial-market-report-flint-davidson-tom-broderick-13764.php 

Smith, R. (2023). Commercial property market a bright spot amid economic gloom. The Australian. https://www.mpamag.com/au/specialty/commercial/commercial-property-market-a-bright-spot-amid-economic-gloom/439613