Australia commercial property sales activity subdued in Q4 2012 but full year 2012 volume nearly on par with prior year

Sydney, 15 January 2012- Commercial property sales activity was subdued in Q4 2012 with less than $2.9 billion of transactions across Australia reported in the quarter, according to a preliminary analysis by CBRE.

While the Q4 2012 total was significantly down from $4.3 billion in the same period in 2011,  annual sales volume  for all of 2012 held ground aided by the relatively strong activity early in the year.  For all of 2012, sales volume across Australia totaled $13.5 billion, compared with $13.2 billion in 2011.

CBRE’s sales data takes into account all retail, office and industrial sales over $5 million. CBRE tracks all retail, office and industrial property sales over $5 million throughout the Australia market.

In order to get a feel for underlying market activity, CBRE’s Australian Head of Research Stephen McNabb said the analysis excluded development-related capital transactions (such as Barangaroo in Q3) and capital transfers such as the Westfield-AMP transfers in Q4.

“The underlying level of transactions softened in the second half of 2012, reflecting the sideways nature of valuations and mixed readings on the economy,” Mr McNabb said.

“Rather than transacting to grow portfolios, some domestic investors have been reassessing strategies and portfolio mixes, which is the rationale for some sales noted in the period. This is expected to continue to drive transaction activity in 1H 2013.”

CBRE Senior Managing Director, International Investments, Rick Butler added; “There are numerous deals in due diligence as a result of offerings coming to the market late in 2012 combined with a perception from both on and offshore buyers that the time is right to get into the Australian market.”

The slowing in transaction activity in 2012 was most pronounced in the office sector (sales down 12% in 2012) . On the flip side, annual sales growth of 24% and 13% respectively were recorded in the retail and industrial sectors.

“While lower interest rates are ordinarily a positive for transaction activity and valuations, mixed and sub trend economic growth evidence, combined with subdued levels of consumer and business confidence have held back growth assumptions and hence valuations, from both a purchaser and seller perspective,” Mr McNabb said.

“Forward indicators suggest that growth in the non-mining economy will remain below trend in the year ahead. Despite this, 2012 overall is a year in which we began to see some re-emergence of domestic investor activity, with sales in that sector up by 12% over the full year. We suspect that this will be an ongoing trend as the pool of superannuation assets grows requiring a destination to generate long term value and solid income returns to investors.”

Mr McNabb added that yields on property assets were attractive relative to cash based interest rate products, while investors remained risk averse.

“That’s evident in pricing, with yields remaining stable and wide relative to government bond yields,” Mr McNabb said. “The market still requires a high yield to invest, and confidence in the growth outlook hasn’t shifted to a point at which rental income is being valued at higher levels.”