Demand remains strong despite a shortfall of listings
Brexit, Trump, a slowing Chinese economy, the federal election.... there was plenty of reasons for investors be hesitant in 2016. Instead, they went looking for yield and one of the most popular, attractive and relatively safe, destinations for capital was Australian commercial property.
Large and small, foreign and domestic, investors, owner-occupiers and developers were all out in force over the course of 2016. Institutional investors searched for quality assets that provided secure, relatively high, yields while owner-occupiers and private investors continued to take advantage of the record low interest rates.
Lack of stock for sale drives down volumes
Despite the ongoing strength of investment demand, the total volume and overall value of transactions declined in 2016, compared to both 2014 and 2015. This reduction is due, in part, to a number of large portfolio sales which occurred in the two prior years – DEXUS/CPA office portfolio in 2014 and the CIC/Investa office portfolio in 2015 – and a considerable decline in assets placed on the market for sale in 2016. The dearth of, on and off market, listings in 2016 has stemmed from a lack of reinvestment options for owners. Those that sold in 2016 looked to take advantage of the recent strong capital gains by selling down non-core assets to fund, or grow, their development pipeline, pay down debt or acquire strategically aligned assets.That said the total value of retail, industrial and office asset sales in 2016, at just over $26 billion, remains well above the 10-year average of $19 billion.
Strong enquiry and demand for all property types
Once again a broad range of investors, acquired a diverse range of commercial asset types over 2016. Everything from small strata office suites and industrial units to large multi-asset portfolios exchanged
hands over the year.
Industrial assets were the outperformer for 2016 with the value of sales transactions growing to over $5 billion, equating to a growth of 30% on 2015. This increase was due to the two Goodman Group industrial portfolio’s which were both purchased by, US headquartered, Blackstone Group for more than $1.2 billion. In addition to institutional grade acquisitions, small and medium-sized enterprises (SMEs) took advantage of the record low interest rates to purchase premises to house their operations.
Office still remained the property sector of choice in 2016, despite the value of transactions declining for the second consecutive year. This reduction occurred due to a lower number of assets available on and off market for sale as well as the DEXUS/CPA office portfolio in 2014 and the CIC/Investa office portfolio in 2015 which boosted value in their respective years. The 2016 calendar year saw just over $13.6 billion worth of office sales take place, 12% lower than the 2015 result. The largest office sale to take place in 2016 was the Southgate complex in Melbourne. This property was sold by Dexus for $578 million to Singapore’s Suntec Real Estate Investment Trust and ARA Asset Management.
Despite Blackstone, Aventus and ISPT all acquiring retail portfolios, the total value of retail asset transactions fell 17%, compared to 2015, with just over $7.6 billion worth of sales taking place in 2016. This again highlights the strong year that retail had in 2015 but also underscores the lack of assets for sale over the past 12 months. The largest retail transaction that took place was the David Jones building in Sydney CBD, this was sold to a JV between Scentre and Cbus from Woolworths for $360 million in August 2016.
Big and small buyers out in force
Commercial real estate remains an attractive investment choice for diverse range of investors, owner-occupiers and developers.
Looking at the overall value of transactions, institutional investors dominate making up 63% sales in 2016. All the major domestic institutions, such as DEXUS, Charter Hall, Mirvac, AMP and Stockland, acquired assets over the course of the year. However, the total value of assets acquired by institutional investors fell 15% compared to 2015.
Developers and owner occupiers were the biggest movers in 2016. This buyer type increased the value of their acquisitions by a massive 27%, compared to 2015, with nearly $3 billion worth of assets being bought by this buyer type.
Private investors also ramped up their commercial property holdings with the value of transactions up 11%, to just under $6 billion.
All price points in demand
In terms of transaction numbers, assets valued between $2 million and $10 million continue to make up the bulk of sales, activity accounting for 49% of sales. This highlights the strength of private investors, self-managed super funds, syndicates and occupiers in the market.
Institutional demand remains strong
In terms of the value of transactions, domestic and offshore institutional investor dominance can be seen with assets valued at more than $50 million making up 69% of the value of all transactions in 2016.
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