Office market leads the way as commercial sales break new ground

Commercial property transactions set a record pace last financial year, with buyers taking advantage of the low interest rate environment.

According to Ray White Commercial, there were more than 9300 major transactions, over $2 million, and as much as $12 billion in smaller commercial sales (sub $2 million) during 2021/22.

Ray White Commercial Head of Research Vanessa Rader said sales numbers were up substantially on the previous finical year across most asset classes.

“Major sales activity grew 49.35 per cent compared to 2020/21, with office transactions increasing 72.89 per cent off the back of a number of large Sydney CBD office deals in late 2021 and into this year; reaching new benchmarks in value and yield,” Ms Rader said.

“On a quarterly basis, we saw peak activity during the two quarters of 2021 with a slow down in transaction volumes into 2022 off the back of more uncertainty in the economy and rising interest rates, moderating the urgency by buyers we had witnessed prior.”

The office sector made up the greatest proportion of turnover, at 32 per cent, due to a number of billion-dollar transactions.

This was up from 28 per cent last year.

Industrial has also been a strong performer in recent years, with record low vacancies driving up rents and keeping yields down, making it an attractive investment choice according to Ms Rader.

“Activity was robust in 2020/21 representing 37 per cent of sales, while this year this proportion has fallen to 28 per cent, the dollar amount has still grown,” she said.

Even with a number of interruptions due to ongoing lockdowns, retail assets continued to perform well Ms Rader said.

“Despite the uncertainty which COVID-19 brought to the retail sector, investment has continued at a high level, contributing approximately 20 per cent of all volumes over the past two years,” she said.

“Hotels, however, have been a significant growth market, a pick up in sales for quality city and regional accommodation hotels this year, together with the continued growth in the pub sector, has seen this segment of the market double its activity over the last financial year.

“While other commercial represent a small portion of our market; turnover has increased 122 per cent to $852 million, indicative of assets such as service stations and childcare, which continue to be popular with the private investor market.”

Ms Rader said transactions were starting to slow down and she expected to see further moderation of activity over the next financial year.

“Rising interest rates will see a number of investors move out of the market who were instrumental in creating fear of missing out (FOMO) and driving price growth over the last 18 months,” she said.

“Leaving more experienced or savvy investors who will attempt to capitalise on changing market conditions.

“Looking ahead, the health sciences sector will be a key asset class likely to grow its investment footprint while hotel assets (a favourite of off shore buyers) will continue to grow in popularity as the population continues to holiday and business travel ramps up improving occupancy and daily room rates.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.