Industrial market leads gradual rebound in CRE investment

Simon Fenn • 14/10/2020

Investment into Australian commercial real estate continued its gradual rise in the September quarter, with transaction volumes increasing to $6.5 billion, up 38% from the June quarter total of $4.7 billion.

According to Cushman & Wakefield's latest national investment report, while overall investment activity in commercial real estate assets remains subdued amid the COVID-19 pandemic, investment has rebounded from its first quarter lows with a growing pipeline of deals expected to support further growth in the December quarter and into 2021.

The quarterly volumes were led by investment into industrial assets with $2.24 billion in transactions recorded, compared to $0.9 billion in Q3 2019 as the sector continues to benefit from the rapid expansion of online trade during the pandemic. 

With quarterly investment into the Australian office market totaling $2.12 billion, the September quarter marked only the second time on record that industrial volumes outpaced office investment accounting for 36% of all transactions. The last time this occurred was in the first quarter of 2011, where nine transactions were recorded compared to 66 industrial deals completed in Q3 2020.

Significant industrial transactions during the September quarter included Dexus’ sale of six assets into its joint venture vehicle with GIC, the Dexus Australia Logistics Trust, for $270 million, and Charter Hall purchasing both the OIA Glass three property portfolio for $214.6 million and 5 Culverston Road, Minto Sydney, for $207 million. 

Simon Fenn, Managing Director, Commercial Real Estate NSW, Cushman & Wakefield, said: “While the uncertainty created by the pandemic has led to a subdued period of investment in the commercial office market, we have seen landmark deals starting to return and a growing pipeline.”

“Assuming the COVID-19 virus is contained, we expect office sales volumes to increase in the final quarter and will be higher again in the first half of 2021. Many owners now better understand the depth and quality of the buyer demand, where the capital is coming from and how it is pricing assets, so are increasingly confident about deciding which assets to sell.”

John Sears, Head of Research, Australia and New Zealand, said: “Despite the impact of the pandemic, we have seen activity pick up each quarter during 2020 across all commercial asset classes. Rising investment is principally buoyed by robust demand for industrial assets, with investment into the office and retail markets remaining relatively weak.”

“Overall, we expect that transaction volumes will remain below average until an effective and widely available vaccine is developed, however, our outlook is that volumes will continue to gradually build in the December quarter and beyond.”

New South Wales led the states with the highest volume of transactions in the September quarter, with research showing $2.5 billion in transactions, or 38% of the national total. This was closely followed by Victoria recording $2.1 billion, or 32% of activity, and Queensland with $521 million equating to 8% of national quarterly total. 

Foreign investment into Australian commercial real estate also fell to 26% of investment with 12 transactions totaling $1.7 billion, down from 42% in the June quarter and an average of about 40% over the past seven years. Singaporean investors were the most active during the quarter with six transactions totaling $875 million, led by Keppel REIT’s purchase of the Pinnacle Office Park for $306 million. Germany was the other major source of offshore capital, with two purchases totaling $603 million.