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NSW and Victoria still the focus for commercial investors

Ray White Commercial, Head of Research, Vanessa Rader said NSW remains the key market for transactional volumes, helped along by a number of high-value asset transactions, notably in the retail and hotel sectors.

“This year 42.8 per cent of sales were across NSW, similar to the 44 per cent recorded in the same time period of 2022,” Ms Rader said.

“Victoria is the second most popular market to invest in, growing its appeal to represent 28.1 per cent, up from 22.2 per cent last year.”

Ms Rader said the largest market mover this year has been Western Australia, which is now the third most popular state to invest in.

“We have seen a number of local, interstate and international buyers look to Western Australia and its economic strength and affordable price point as a market to speculate in,” she said.

“While Western Australia has recorded a major retail transaction propping up these numbers, strong population gains have resulted in improvements in occupancy for office and industrial assets, while an uptick in tourism has also seen hotel and retail assets grow in popularity, with the expectation of future income return movements.”

Queensland investment has started to dwindle this year Ms Rader said and it now represents just 11.3 per cent of sales, after growing to 20.2 per cent last year, despite their strong population push.

Ms Rader said the hotel and tourism sector has been attracting the most attention in 2023, spurred on by a range of international branded hotel sales including the Waldorf Astoria in Sydney and Sofitel in Brisbane.

“A number of budget chains and private offerings have also changed hands capitalising on the strong gains in average room rates and the uptick in international and domestic travel activity, this year accounting for close to 20 per cent of all sales, up from 6.4 per cent last year,” she said.

There has also been a strong interest in retail assets with large sales including Rockingham Shopping Centre in Western Australia, Craigieburn Central and Forest Hill Chase in Victoria, and Menai Marketplace and Stanhope Village in NSW.

“The appetite for investors to purchase these sub-regional sized centres highlights the changing retail trade trends surrounding the growth in food, convenience and attractiveness of discount department stores such as Kmart,” Ms Rader said.

“During the first quarter of 2023 nearly $2 billion in retail sales occurred, representing 41.5 per cent, and while the volumes remain well below Q1 2022 results, its portion is up to 27.4 per cent.”

Meanwhile, the office sector has halved its proportion of all investment this year, as there were limited larger trophy sales compared to the same time last year, resulting in this asset class accounting for just 15.42 per cent of sales she said.

Ms Rader said industrial activity had also slowed, particularly at the upper, institutional end, while smaller private investor and owner-occupier activity continues strongly, particularly in the sub $1.5 million price range, with more than 300 transactions occurring at this price point so far this year.

According to Ms Rader, across the alternatives sector, activity is still occurring, albeit at a much slower rate. 

Childcare across the country has recorded 46.3 per cent decline in sales activity compared to first quarter 2022, while service stations and medical asset volumes are down over 80 per cent compared to the same time last year,” she said.

“While high construction costs continue to plague the development site market, sales this year only represent 12 per cent of what was transacted the same time last year.”

Ms Rader said it’s prudent to remember that the commercial property market has come off a strong two years in sales volumes, capitalising on historic low interest rates and availability of finance, while strong income gains for some asset classes also saw an increase in purchasers entering the market.

“As conditions have changed, we have seen many less experienced buyers leave the market, and many opportunistic investors jump,” she said.

“These buyers are moving with less urgency or are seeking out distressed assets or value add opportunities at the right price.

“As a result, we expect to see volume this year remain subdued, while REITs, funds and offshore buyers are likely to proceed with caution given the global banking turmoil which continues to unfold.”

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