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All core commercial sectors recorded an over 50 per cent drop in Q3 2023 compared to this time last year.
The latest Australia Capital Trends report from MSCI Real Assets found that only $8.2 billion worth of commercial deals took place in Q3 2023, the lowest level for a third quarter seen in more than a decade.
This year’s Q3 deal volume was a staggering 64 per cent lower than in 2022, and no sector was immune, with double-digit declines seen in office, industrial and retail sales.
Total sales were even lower than they were in mid-2020, at the height of COVID-19 border restrictions.
According to Benjamin Martin-Henry, head of Pacific real assets research at MSCI, two main factors are responsible for this decline.
“Pricing is of course the major obstacle for deal flow this year, especially as Australia has not seen the same corrections as some overseas markets,” stated Mr Martin-Henry.
“Prevailing economic and geopolitical issues are also having a significant impact on investor confidence.”
The office sector saw the most significant year-on-year decline, with office sales falling 77 per cent compared to Q3 2022. In total, only seven office deals over $200 million took place from January to September this year, compared to a whopping 32 deals in the first nine months of 2022.
“Overseas investors have historically targeted offices when deploying capital in Australia, so with the structural shift in the sector it’s of little surprise to see volumes so low,” said Mr Martin-Henry.
He continued: “The number one question I get asked from overseas investors is if Australia still represents good relative value compared to other major markets, given the lack of price adjustments. For many, it seems not.”
The report found that Singaporean investors, who have historically dominated the Australian office sector, have been particularly quiet this year, with some major Singaporean investors redeveloping their office assets into residential properties.
The industrial and retail sectors were also victim to this market malaise, with deals dropping 50 per cent and 51 per cent respectively.
Aged care assets saw the biggest decline, with a massive 93 per cent fall in sales compared to a year prior.
David Green-Morgan, MSCI’s global head of real assets research, confirmed that “pricing has been a considerable barrier to acquisitions over the past year”.
Despite a slight cool in the rate of decline – at -1.6 per cent in Q3 2023 compared to -2.8 per cent in Q2 – Mr Green-Morgan emphasised that “there is still a significant gulf on office pricing”.
Looking forward, the analytics firm is not optimistic about the likelihood of a surge in Q4 2023.
“With only $3.5 billion of transactions in the pipeline, 2023 looks increasingly likely to go out not with a bang but with a whimper,” the report predicted.
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