Commercial transaction volumes are set to rebound as opportunistic buyers look to capitalise on lower prices and a potential cut in interest rates, according to an expert.
Ray White Commercial Head of Research, Vanessa Rader, said the volume levels of 2023 highlighted a change in confidence for the commercial sectors.
“Last year we saw many owners reluctant to transact and adopt a ‘wait and see’ attitude,” Ms Rader said.
“This year, we expect to see an increased need by vendors to bring their assets to market, which will impact turnover levels.
“Encouraging for 2024, the stagnant feel of 2023 will move and sentiment shifts, either positive or negative, will result in property decisions being made and opportunities presenting themselves, resulting in some turnover activity rebound for the year ahead.”
Ms Rader said the office sector could be an asset class that sees transactions begin to rise.
“We saw in 2023 a turnaround in activity for the office sector,” she said.
“This sector was leading the charge in 2022, recording more than 34 per cent of all transactions, and representing close to $23 billion in sales.
She said as vacancy concerns continue across the office sector, the outlook for this year will continue to be tough for this asset class.
“However, uncertainty surrounding the future of office and yield increases saw this sector go off the boil, reducing volumes to just $10.8 billion.”
“Offshore interest has declined and investment yields are expected to be further pressured upwards until occupancy improves and the outlook for face rents stabilise,” Ms Rader said.
“Opportunistic buyers, however, are likely to seek out assets due to recent price declines in anticipation for the future rebound of the office sector.”
According to Ms Rader, industrial regained its number one position as the most active asset class in 2023, representing 29.4 per cent of all sales.
During 2022, this sat at just 25 per cent, with assets tightly held and larger office transactions dominating total volumes.
“With construction activity remaining limited across the industrial sector, the mismatch in supply and demand has ensured this asset class is one of the more favourable for many investors,” Ms Rader said.
For retail, investment remains robust, representing 21 per cent, with many larger centres changing hands, while a slow down has occurred across the smaller end of the market, with strips, stand alone and bulky good type assets all more difficult to shift.
Ms Rader said until interest rates start to see some relief, this sector is expected to remain subdued.
She said for the alternatives market there was continued investment activity, with transaction volumes growing to more than $4.2 billion, with buyers attracted to the secure, long term income streams.
“Many investors are now more selective when considering these types of investments and are ensuring assets have particular features including a good location and have strong lease covenants,” she said.
“As yield levels grow, values are compressed and greater distressed activity is starting to emerge by less experienced investors who have been navigating these sectors in the last few years.”
Development sites have had a quiet couple of years, and despite the undersupply of residential across most of the country, the inability for some projects to financially ‘stack up’ has resulted in an increased volume of stock come to market according to Ms Rader.
“Receiver sales picked up late last year and are expected to remain a feature this year until we start to see some interest rate declines,” she said.
“Despite these woes the strong performance of the residential sector sparks opportunities within the commercial arena.
“Blocks of units, student accommodation, and build-to-rent assets have growing interest.”