Weekly Update 30/5/2022

30 May 2022

Welcome to this week’s property news.

As I reflect on the last few months of market activity, I sense a noticeable drop in transaction activity through the mid to upper price levels as many of the REITS are either absorbed with previous major transactions or are re-assessing their strategy for 2022 as we enter a cycle of inflation and interest rate rises.

According to RESourceData, the average transaction price this quarter is also lower at around $36m down from $45m in prior corresponding period in 2021. The drop in transactions is concentrated in sales above $200m which are down -54% in total value, whereas sales under $200m are 7% higher than last year.

I expect transaction volumes will continue to track at a lower level as investors find it difficult to acquire assets which are accretive to existing returns.

Major investment groups will therefore turn attention to their existing development pipelines to pursue higher returns, however with significant cost increases, the risks to achieving better returns from development is also suspect.

It is no wonder there are battles being had over existing management platforms which are seen to be a pathway to higher earnings without the need to deploy significant capital to the property level assets eg Dexus and Mirvac’s pursuit of the AMP Capital Wholesale Office Fund.