Higher interest rates have hit commercial property hard, with sales activity down 37.6 per cent on last financial year.
According to Ray White Commercial, the 2022/2023 period resulted in just $62.30 billion in sales across about 7100 transactions – well down on the nearly $100 billion in sales from the prior year.
Ray White Commercial Head of Research Vanessa Rader said last financial year there was a rise of new entrants into the commercial market, with private buyers taking advantage of low interest rates and speculating in various commercial asset types in a rapidly reducing yield environment.
“Fast forward 12 months and the upward pressure on interest rates has started to see investment yields increase and many non-experienced buyers have retreated,” Ms Rader said.
“Overall activity has slowed as uncertainty in the economy and the future of interest rates has seen both buyers and sellers be more considered in their investment decisions.”
Ms Rader said the sense of FOMO, which was rampant in 2021/2022, has subsided with investors opting for a “wait and see” attitude, not dissimilar to the COVID-19 period in 2020/2021, where volumes achieved $45.79 billion.
“As a result, listing numbers have reduced and the pool of buyers is limited, however, during 2023, we have started to see more distressed assets come to the market, which is expected to be a feature of the next 12-month period” she said.
Ms Rader said NSW continued its charge as the number one state for investment, recording more than $24 billion in sales.
“This has fallen by close to 40 per cent on last year’s results, which is similar to Queensland investment,” she said.
“Queensland was a market which saw one of the largest upticks in investment activity in 2021/2022, as a response to strong interstate migration supporting office, retail and industrial demand, notably in south east Queensland.
“Volumes this year have not been able to keep pace.”
According to Ms Rader, Victoria has seen a 33.7 per cent reduction in sales activity over the year while South Australia and ACT results were most aligned to last year falling just 18.1 per cent and 5.8 per cent respectively.
“Western Australia was another market which saw strong upticks in transaction activity off the back of population movements as well as interstate buyers looking to the affordability and strength of various commercial asset classes in WA,” she said.
“With buyers looking for affordability and greater returns, many buyers did look at markets such as Tasmania and the Northern Territory, which historically have had limited turnover.
“These markets have taken a tumble in volumes of close to 70 per cent this year compared to last year’s results.”
Ms Rader said buyers in the current market have reverted back to the long term fundamentals of location, which is expected to continue over the next year, keeping east coast markets the major contributor to sales activity.
