Sydney, 2 April 2014 - After a record year, commercial sales activity dipped in Q1 2014 ahead of what is expected to be an extremely active second quarter.
CBRE data shows that sales of retail, office and industrial assets valued at over $5 million were 17% lower in Q1 relative to the same period last year. However, the quantum of sales currently in due diligence suggest a flurry of activity in the coming months.
CBRE’s Australian Head of Research, Stephen McNabb, said Q1 activity was lower across all sectors however this followed a record 2013 during which sales activity had eclipsed the previous 2006 record by more than $5 billion.
“Q1 is seasonally a softer quarter for activity and hence it is more difficult to interpret trends in a market subject to large and lumpy deals,” Mr McNabb said.
“Activity in all sectors was lower than a year ago, although office and industrial has held up better than retail. Overall quarterly volumes in Sydney and Melbourne were ahead of year ago levels, while down in Brisbane, Perth and Adelaide.”
CBRE Regional Director, Capital Markets, Josh Cullen said the lower sales activity had been a timing issue and there had been no signs of any easing in buyer interest from both domestic or offshore purchasers.
“The current level of buyer enquiry and the pipeline of property that is either in due diligence or being marketed at present suggest that sales volumes in Q2 will be extremely strong,” Mr Cullen said.
“The enquiries we’re receiving have been equal to, if not higher, than they were in the first quarter of last year.”
This was evident in the three major office tower campaigns that had recently closed on assets valued at circa $850 million. Mr Cullen said $4 billion in offers had been received and all three properties were currently in due diligence.
Richard Butler, CBRE Senior Managing Director, International Investments, added that a flood of known and new offshore capital was seeking investment opportunities in Australia and this been evidenced by a number of recent sales campaigns attracting a high proportion of overseas bidders.
An upswing in sales activity is also expected in the industrial sector. CBRE Regional Director, Industrial & Logistics Services, Matt Haddon said CBRE had circa $500 million in stock currently in due diligence and another $700 million in property available to transact in Q2.
“The substantial level of activity in the market at present could well see the Q2 industrial sales figure exceed $1 billion, almost double the sales recorded in the first three months of this year,” Mr Haddon said.
At a macro level, Mr McNabb said commercial property yields had been supported by a reduction in required return in a falling interest rate environment, with risk premiums normalising from GFC highs.
“Going forward, stable rather than falling interest rates and rising bond yields globally are expected to halt the rate of “required return” compression in Australia. The upshot is that yield becomes driven more by the income (rent) outlook,” Mr McNabb said.
By sector, Mr McNabb said the expectation was for an improvement in the industrial and retail sectors, particularly large format, subregional and neighbourhood centres), as these asset classes appeared to be best placed to benefit from the economic recovery and an improvement in rent growth. Further yield compression was expected in these sectors, particularly in secondary grades as the rent cycle improves.
Mr McNabb added; “Office valuations appear fairly balanced at the moment. The pressure point in most office markets remains rising vacancy and associated income risk. Sydney appears to be better placed, with only 1-2% point increase in vacancy expected over the next two to three years.”
For Australian/international news or global stories, follow us on Twitter.
