Q3 Commercial Property Market Gains Momentum, Surpassing Expectations
The commercial property market saw a remarkable surge in momentum during the third quarter of 2024, with transactions across office, retail, and industrial sectors totaling $6.2 billion, representing a 40% year-on-year increase. This rise was driven largely by offshore investors, domestic institutions, and private capital, as noted in a report by Rommel Lantayao.
A standout performer in this quarter was the industrial sector, which recorded $2.2 billion in sales. Offices followed closely behind with $2.1 billion, and retail registered $1.9 billion in transactions. “Momentum is clearly building across commercial property sectors, and the office sector has been a major beneficiary,” said Luke Billiau, head of capital markets Australia at JLL, in an interview with The Australian.
Billiau pointed to a combination of factors fueling the recovery, including the peak in the interest rate cycle and a bottoming of property valuations. With investor confidence growing, particularly following a 50-basis-point cut by the Federal Reserve, further market growth is anticipated. “While we’re close to the trough in valuations, the rate cut is a positive step in the right direction that instils more confidence into real estate investors’ decision-making,” Billiau added.
Foreign investment played a crucial role in the resurgence of the office sector, with two of the top three office deals in the quarter involving international buyers. German firm Deka, for instance, is set to acquire Sydney’s 333 George Street for $395 million, while Hong Kong-based PAG purchased Melbourne’s 367 Collins Street for $315 million.
In addition to office sector growth, retail transactions saw a 12% increase, with sales rising to $4.3 billion from $3.9 billion. Industrial sales showed particularly robust performance, climbing 66% in the first nine months of 2024 to $8.3 billion, a stark contrast to the $5 billion recorded during the same period in 2023.
The trend of large-scale transactions also continued, with 12 deals exceeding $300 million in value year-to-date. Andrew Quillfeldt, head of capital markets research at JLL, commented, “The top five transactions by value this year have been dominated by superannuation funds and offshore buyers,” highlighting the increasing presence of large international investments in the Australian commercial property market.
Despite lagging behind other global markets, the Australian property market shows promising signs of recovery, with experts forecasting a strong finish to the year. Billiau projects full-year sales volumes to hit around $28 billion, just below the 10-year average of $31 billion. With the traditionally strong fourth quarter still to come, the outlook for Australia’s commercial property sector remains optimistic.
For investors, the current conditions present a golden opportunity to capitalize on the evolving market landscape. Quillfeldt noted that institutions are strategically managing portfolios through asset sales and external capital, emphasizing that large transactions are likely to continue in the near future.
As Australia’s economic recovery gathers pace, commercial real estate could emerge as a prime investment target for both domestic and international players.
Reference:
Melissa Fisher
Founder, Acuity Development Group & The Right Team