The Western Australian commercial property sector has experienced varied outcomes in the last year, with some asset classes performing well and others creating opportunistic buying opportunities.
After a sluggish investment period in 2022/23, largely due to elevated interest rates and inflationary pressures on spending (especially in housing and construction), there were high hopes for a recovery in transaction volumes in the 2023/24 financial year. This optimism stemmed from improved financing prospects, increased property listings, and a construction industry bolstered by population growth attempting to address labour shortages.
However, persistent high inflation has dampened hopes for interest rate cuts, causing property owners to remain cautious. RWC WA joint managing director Stephen Harrison said this conservative approach led to reluctance in testing the market and accepting new benchmark yields, resulting in tight supply.
“Market hesitancy is evident in the limited transaction volumes across most asset classes. Institutional investors have become net sellers in the current climate. This has created increased opportunities for private investors,” Mr Harrison said.
“The retail sector has been the primary beneficiary for these buyers, with increased market volumes this year. However, medical and other alternate assets have also performed strongly. Industrial supply continues to be tight, with owner occupier profile buyers creating demand and bolstering prices.”
The commercial office sector has undergone significant changes in recent years, with COVID-19 leaving a lasting impact. RWC WA director of capital markets Brett Wilkins said this fiscal year, office sales transactions in the region totaled $396.8 million, marking a 70.4 per cent decrease from the previous year and falling well short of the $1.8 billion peak achieved in 2019/20.
“While Western Australia experienced fewer lockdowns than the east coast markets resulting in a less pronounced shift to remote work, low unemployment and competition for talent have led to increased workplace flexibility, altering how businesses utilise their office spaces,” Mr Wilkins said.
“The decline in transaction volume is largely attributable to reduced institutional and offshore activity, with private investors emerging as the primary buyers in the current market.
The industrial sector has been the standout performer in commercial real estate over the past five years, with its popularity surging during the COVID-19 pandemic.
“This growth was driven by increased retail spending and demand for storage, distribution, and logistics facilities. Supply constraints due to rising construction costs and pandemic-related disruptions led to significant rent increases,” Mr Harrison said.
“While industrial properties remain popular among investors, Western Australia has seen two consecutive years of declining investment.
“The past financial year recorded $923.1 million in turnover, a 68.6 percent decrease from the peak year results of over $2.9 billion.
“Private sector buyers, including owner-occupiers and investors from both local and interstate markets, have dominated recent transactions.”
Mr Harrison said the retail sector had faced challenges in recent years, but rapid population growth, particularly in Perth, had had a positive impact.
“Despite evolving consumer habits, strong occupancy levels have been maintained due to limited new supply and increased demand for essential retail,” he said.
“Transaction volumes have recovered over the past two years, with the current period recording $1.4 billion, a 31.6 per cent increase from the previous year.
“The success of retail properties varies significantly based on location, with food and services sectors experiencing growing demand for space.
“However, other retail categories face challenges due to increased living costs and inflationary pressures.
“Shopping centres maintain high occupancy rates with stable rental increases, while strip retail properties’ performance depends heavily on location and quality.
“Well-situated assets, particularly those catering to the food sector, have seen favourable rent increases and more stable income streams.”
Perth’s tourism sector has experienced significant growth in the past year, bolstered by government initiatives to promote new visitors including world-class sporting events.
Mr Wilkins said these efforts had improved occupancy rates and daily room rates across Perth’s hotel assets.
“Visitor nights for the year ending March 2024 reached a record-breaking 80.4 million, with an average daily spend of $222,” Mr Wilkins said.
“The Perth hotel market is outperforming national averages, with annual average occupancy at 78.4 per cent compared to Australia’s 70 per cent. This has driven average room rates above $220 per night.
“The influx of new, high-quality hotels over the past five years has set a new benchmark for the city, attracting international attention.”
Despite strong performance, hotel transactions this year totalled just $183 million, a 17.2 per cent decrease from the previous year.
“This decline is primarily due to limited available stock on market rather than lack of interest,” Mr Wilkins said.
“Asian investors, particularly from Singapore and Malaysia, are showing keen interest, which is expected to keep transaction volumes stable and investment yields low in the near future.”
