Commercial property sales activity throughout Australia remains subdued as the impact of weak conditions in retail, services and manufacturing flows through to reduced demand for space in these areas.
In the September quarter, a total of $2.8 billion worth of transactions took place with regard to office, retail and industrial property worth over $5 million throughout the country, according to figures from real estate services firm CBRE Australia. That number marked an eight per cent decrease compared to the same period last year.
CBRE head of research for Australia, Stephen McNabb, says the drop-off in activity reflects the subdued nature of the domestic economy.
“Overall confidence in the consumer and business sectors has been subdued and forward indicators of growth suggest the economy will remain below trend in the year ahead,” he says. “This is reflective of the lack of confidence being experienced globally and in an environment where there is a lower appetite for taking on debt.”
A pullback in demand from foreign investors led the decline, with McNabb saying those investors may have been turned away by concerns about currency risks and tax changes.
Demand from private investors and managed funds, meanwhile, continues to pick up.
CBRE regional director of institutional investment properties Rob Sewell says that in addition to economic concerns, turnover is also being affected by a lack prime CBD stock availability on the market.
Pointing to a number of prime asset listings on the market in recent weeks, however, Sewell says transaction volumes are likely to pick up in the fourth quarter and into next year. These assets include 60 Carrington Street in the Sydney CBD, 99 Walker Street in North Sydney and the Optus Campus at Macquarie Park.
Despite the pullback, McNabb says Australia remains an attractive destination for foreign investors. He also says commercial rents will continue to increase going forward, albeit at a slower pace.
“We expect foreign investors to be attracted to the Australian market in general by supportive macro-economic conditions, higher benchmark interest rates (in comparison to other Western markets) and prospects for higher returns,” McNabb says, adding that prime property assets represent a relatively attractive investment proposition compared to other forms of fixed interest.
“To date there has been a relatively low level of new supply coming on stream which has helped to keep markets balanced, although there are some geographic specific divergences in relation to outlook which pose some risk to rental growth,” he says. “Overall, however, we expect that this will slow rather than flatten face rental growth in the period ahead.”