The commercial property market saw a swift slow down in transaction activity earlier this year as interest rates made their first upward movement. Now recording seven consecutive interest rate increases since May, many investors have left the market after a busy 2021 period resulting in strong declines in 2022 sales volumes.
The record low interest rates seen in 2021 and the appetite for both bank and non-bank lenders to finance commercial investments saw a record number of buyers in the marketplace. From first time private investors and owner occupiers through to REITs and funds we saw intense competition to secure commercial assets resulting in significant yield compression across most asset classes. With financing now a little more difficult to obtain and as many owners grapple with changes in values there has been a vast reduction in assets coming to market. During this year we have seen a number of listed and institutional groups look to sell, while private investors and offshore buyers continue to invest, many seeking out discounted assets or to move up the risk curve for “value-add” assets during a time of yield compression and high inflation.
During 2022 through to 1 December, we have recorded $66.9 billion in sales transactions for assets over $2 million. This represents a 30 per cent decline on the busy 2021 result where over $95 billion changed hands. However, volumes this year still exceeded the uncertain 2020 period which reached $49.1 billion – despite low interest rates, many buyers and sellers had a “wait and see” attitude regarding the impacts of COVID-19 during this period.
Looking at the makeup of sales across the country, the spread of transactions has followed very similar trends of the past three years. NSW remains the number one location in which investors have targeted, representing 39.7 per cent this year up from 39.1 per cent in 2021, However, we have seen a slight move away from regional transactions in 2022 to more long-term, normalised levels compared to 2021 where these sales accounted for more than 15 per cent of all NSW sales. The proportion of Victorian sales have remained constant the last two years, this year representing $18.1 billion, similarly regional sales have also fallen.
For Queensland, strong population gains and robust economic results compared with the other east coast states saw 2021 volumes jump up with many interstate buyers zeroing in on the more affordable northern neighbour. This resulted in close to $19 billion in sales, representing 20 per cent of national turnover, a historic high. Interest in markets such as Gold Coast and Sunshine Coast hit new levels as non-metro sales recorded more than 40 per cent of all sales. This year these non-metro sales have come back slightly to 36.1 per cent with the total Queensland transactions representing 18.3 per cent of national sales turnover.
Western Australia is another market which benefited from strong border control, population gains and GSP results in 2021, interest in WA saw 6.7 per cent of all sales in the state before contracting to 4.9 per cent this year. Encouragingly for all other states, investment in SA, NT, Tasmania and ACT all saw increases during 2022 compared to the busy 2021 sales period as buyers continue to look for more affordable and “value-add” propositions.
