2nd Quarter Transactions Highest in 5 Years

17 July 2021

Real estate transactions in the 2nd Quarter of 2021 were the highest in 5 years, despite the impacts from COVID.

Institutional grade transactions captured by RESourceData for the Office, Retail, Industrial and Development sectors topped $15bn in the 3 months to 30th June, including over $6.5bn of industrial transactions, thanks to the $4.6bn of logistics portfolio sales by Blackstone. Total transactions in the quarter were $ 15.04bn, up 24% on the same period in 2019 and more than 7.9% higher than the previous high of $13.93bn in Q3, 2019.

The surge in sales is a reflection of Australia’s attractive risk adjusted returns underwritten by a stable economic and political environment, and strong economic growth prospects. Investors (both domestic and offshore) expect these fundamental indicators to remain in place for years to come.

Nowhere is this more evident than in the Industrial real estate sector where asset values have continued to be bid higher, especially for assets that have a hint of a long lease or logistics occupant.

The chart below shows the performance of each major sector of the Australian real estate market for each quarter over the past 5 years.

Prior to the COVID pandemic, office and retail transactions often accounted for 75%+ of total real estate transactions, however since the start of the pandemic they now current typically account for 35% – 45% of total sales as the risks in the Office and Retail sector have increased. Industrial sales, on the other hand, have risen from approximately 15% of total transactions to now more than 35%.

Click below to expand each Sector to see the key data and our summary for Q2.

Premium Subscribers can access and manipulate the charts at RESourcedata.

Confidence in the Office market has improved with office transactions doubling on the same period last year to $4.1bn in total. The weighted average cap rate for office transactions has remained consistent with the first quarter of 2021 at 5.6%.

The key transactions in Q2 included Charter Halls acquisition of 25 Cowlishaw Rd Tuggernong from AIP Asset Management for $306m and Marquette’s acquisition of 10 Eagle Street Brisbane QLD from Dexus.

CBD markets accounted for $2.1bn of office sales with Brisbane being the most active Office market with $772m of transactions across 5 key assets. Sydney recorded 6 key transactions worth $640m including EG Funds Management’s acquisition of 50 & 60 Carrington Street from AMP Capital’s client SwissRe and Brookfield.

Metropolitan markets accounted for $1.8bn of sales in the quarter with the largest sales being the Charter Hall acquisitions in Tuggernong and Box Hill, both from AIP Asset Management. Centuria’s acquisition of 1 McNab Ave was the next largest at $224m. The weighted average cap rate for the Metropolitan market sales was 5.1%.

We also recorded $187m of office sales in regional markets at a weighted average cap rate of 6.3%.

The Retail sector has started to recover from an extremely slow first quarter with sales pushing in excess of $2.4bn, also up on the same period in 2020. The weighted average cap rate for the sector has moved around a lot dependant on the type of stock being sold in each quarter.

Our data for the second quarter reveals $1.3bn of Sub Regional Centre sales, $653m of Neighbourhood Centre sales, and $337m of Bulky Goods Centre sales. The weighted average cap rate across the sectors was 6.3% with Neighbourhoods reflecting a 5.7% cap rate and Sub regionals at 6.7%.

The largest Retail Centre sale in the quarter was Blackstone sale of Rundall Place to Irongate for $210m, followed by Perron Groups’ sale of Mirrabooka Square to Fawkner Property Group for $195m.

As we indicated above, the Industrial Sector in Australia recorded $6.5bn of transactions in Q2, far more than any other quarter in history. The sale of 2 Blackstone portfolios accounted for $4.65bn of this total with ESR & GIC picking up the major portfolio for $3.8bn and PGIM and Manulife the smaller portfolio for $850m, both reflecting a sharp 4.5% yield.

Other significant sales included Charter Halls acquisition of PFD Foods facilities for $269M and Lendlease’s acquisition of the Best & Less Distribution facility in Eastern Creek from AMP Capital’s client SwissRE for $130m.

As is evident in the graph below, the compression in industrial yields has continued dropping from a weighted average of 5.6% last quarter to 4.5% this quarter, thanks to the Blackstone sale. The general trend in cap rates continues to be downwards.

The Development sector has not slowed down over the past quarter with $2.0bn of transactions, slightly higher than an average quarter. The majority of development transactions are for large scale industrial precincts or house and land subdivisions in outer suburban areas.

The largest sale we recorded was by Lendlease of a large parcel of land in Wilton which was sold to Metro Property group for $220m. Stockland were also high on the list with the acquisition of a parcel of land in Beveridge for $125m.