Commercial property sales to hit a record high in 2019
Commercial property sales hit a record high in 2019
| 12 December 2019
Big ticket deals dominate with a significant drop in the number of transactions.
The value of commercial property sales in Australia has hit a record high in 2019, underpinned by a slew of big-ticket transactions.
Preliminary CBRE data shows that commercial sales currently total ~$38.6 billion, ahead of last year’s record high of ~$37.8 billion
However, with a handful of deals still in the works, CBRE’s Pacific Head of Capital Markets, Mark Coster said the likelihood was that 2019 sales would rise even higher to reach $40 billion by year end – despite a marked drop in the number of transactions, which is ~30% down on the five-year average.
“More than any other year, 2019 was typified by large trades across almost every asset class,” Mr Coster said, noting that the larger trades in 2019 had been largely driven by M&A activity, private equity deals and structural changes in the retail sector.
“Rental growth prospects are strong across most sectors and investors are therefore looking to leverage that upside, which has slowed the availability of product coming to market.”
CBRE’s preliminary data shows that ~670 retail, office, industrial and hotel deals (valued at over $5 million) have transacted year to date, which is significantly down on the five-year average of 983 sales.
Office has emerged as the only sector to surpass previous records, coming in at ~$23 billion – well above the $17.8 billion in sales recorded in 2018.
However, CBRE’s head of Capital Markets Research Ben Martin-Henry said the number of transactions was down ~10% on 2018, indicating that big-ticket sales have bumped up the sales total.
This is further evidenced by an average sale price of ~$104 million compared to the five-year average of ~$62 million.
Retail sales volumes came in at ~$7.2 billion, down ~27% on 2018. The number of transactions also dropped, by ~37%.
“The dollar value belies the weakness in the sector as three transactions accounted for 25% of total volumes,” Mr Ben Martin-Henry said.
“Despite this weakness, astute investors appear to be capitalising on a move by some owners to reposition their portfolios by picking up high-quality assets that rarely come to market.”
Industrial has had a strong final quarter, resulting in an annual sales volume of ~$6.9 billion across 241 deals compared to 2018 levels of ~$8 billion across 415 transactions.
A series of major transactions are in the pipeline and likely to finalise by year end, which is expected to push the sales volume closer to last year’s levels.
Hotels bucked the trend and recorded a 20% increase in the number of transactions. However, this didn’t translate to a higher sales volume, which dipped by ~18% relative to the previous year.
This was partially due to the lack of CBD hotel stock for sale in the major markets, which has been an ongoing trend.
Looking to 2020, CBRE is forecasting additional interest rate cuts, which will further lower the cost of capital.
“We expect most asset classes to perform well in 2020 and that continued cap rate compression will drive returns on office and industrial assets,” Mr Coster said.
“We expect there to be some large, high-quality trades in the retail market as investors gain confidence around rents and the relative returns available. We also expect to see an increased level of activity in the alternatives space, including activity in the build-to-rent sector.”
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.