The lowest interest rates in history and the stable political and economic credentials of Australia continue to see a capital pouring into commercial real estate.
Data collected by RESourceData reveals that transactions of office, retail, industrial and development sites for the 3-month period ending in September, reached $13.8bn, a new quarterly high for Australia.
Office transactions, which comprise almost 60% of all transactions this quarter, reached a new high of $8.3bn for the quarter, up 9.2% on last quarter with 78 major sales recorded by RESourceData.
CBD transactions including towers 2 and 3 at Barangaroo, 201 Elizabeth Street, 400 George Street, and Wynyard Place were down slightly on the previous quarter with Metropolitan sales $1.0b higher than last quarter, led by 21 Harris Street Pyrmont and the Telstra portfolio. GIC and Charter Hall were the key investors in the market with the pair acquiring the Jessie Street Centre in Parramatta from Brookfield, whilst GIC also acquired the Barangaroo Towers from Lend Lease, and Charter Hall were behind the acquisitions of the Telstra portfolio and 201 Elizabeth Street.
Despite the higher number and quality of transactions, the weighted average cap rate across the Office sector remains steady at approx 5.4%.
The movement of capital into real estate is also set to continue with the Yield Spread to 10-year bonds moving well above the long-term average of 200 – 400bps. With an average yield of 5.4% in the office sector and a 10 year bond rate of 1.0%, the current spread is circa 440bps, well above the long term average.
Property pricing is slow to react to changes in bond markets and it is expected that with the recent decline in bond yields, there is lag affect yet to play out. Yields are therefore expected to be pushed 50bps lower and still be seen to be at the upper end of the average spread, particularly for the industrial and office sectors.
The jury is out on whether the long term risk premium for assets in the retail sector is appropriate given the changing social, technological and demographic factor influencing spending behaviours. We expect within the retail sector, the Neighbourhood Centres will revert to the median yield spread however the larger malls will likely remain well above the long term average spread.
RESourceData has collected a comprehensive database on over 3,000 real estate transactions since 2015 across all retail, office, industrial and development sectors in Australia, providing invaluable data mining capabilities to clients. For more information see www.resourcedata.net.au
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