Colliers International’s Capital Markets Investment Review found that despite the major disruption during 2020 due to the pandemic, the outlook for Australian property investment in 2021 is positive.
John Marasco, Managing Director, Capital Markets and Investment Services said, “Many major deals ground to a halt in March 2020, while investors and vendors assessed the impact the pandemic would have on income, in the short term and longer term.”
“However, the International Monetary Fund predicts that the Australian national economy, will bounce back more quickly, relative to other developed countries; national GDP rose 3.3% in the September quarter and NAB’s index of business confidence jumped by 9 points in November 2020.”
“These figures, coupled with Australian Consumer Sentiment hitting a 10-year high in December 2020, and a lower than expected unemployment rate of 6.8%, suggests the outlook for 2021 appears to be improving.”
OfficeOffice sales volumes in the second half of the year were impacted due to the onset of the COVID-19 pandemic in March 2020, with only $1.76 billion of sales recorded nationally - down 64.4% from the corresponding period in 2019. Sales improved in Q4 with $4.52 billion of sales recorded in the quarter.
Transactions in 2020 had an average sale price of just over $202 million, which was 27.4% less than the previous year.
Adam Woodward, Head of Office Capital Markets at Colliers International said, “We are still experiencing strong demand for office assets, particularly those that are well located with long leases in place. There is a significant weight of offshore capital looking for opportunities in the Australian office market, which we expect will boost transaction volumes well beyond the level in 2020.”
“Metropolitan office markets have been favoured by investors, accounting for a much larger proportion of the transaction volumes than last year at nearly 40%. It was almost an even split between metro and CBD volumes in Sydney in 2020, and Brisbane saw more activity in the metro markets than the CBD market.”
“The change in occupier behaviours and therefore their requirements is likely be to be a key driver in the next supply cycle, with adaptable buildings which provide the latest in health and hygiene facilities to be in high demand. The change in tenant requirements is likely be to be a key driver in the next supply cycle, with spacious buildings which provide the latest in health and hygiene facilities to be in high demand.”
IndustrialThe industrial sector has been brought to the forefront in 2020 and has outperformed all other mainstream real estate asset classes. This asset class accounted for 28.5% of investment volumes in 2020 (across office, retail and industrial), well above the 15.4% recorded in 2019.
Colliers Industrial Capital Markets Review found that Australian industrial and logistics assets remain well sought after, with $5.49 billion trading in 2020 - up 11.5% from the level recorded in 2019.
The East Coast states captured 91.6% of investment volumes in 2020 as institutional groups look to capitalise on strong leasing fundamentals and favourable outlook for further yield compression in these states.
“The strong level of investment recorded for the year has come off the back of robust fundamentals within the sector including e-commerce growth, food logistics and infrastructure investment, as well as a deeper pool of capital as new entrants to the market emerge,” said Gavin Bishop, Head of Industrial Capital Markets at Colliers International.
“Changing consumer preferences towards online grocery and food platforms in 2020 has resulted in strong occupancy demand from occupiers in the food subsector; these businesses have continued to perform well, with expenditure on food items rising by 11% since panic induced buying in March 2020, well above the 2.8% recorded for the corresponding period in 2019.”
“The vendor profile has been under pinned by corporate groups, the bulk of which have been sold via a sale and lease back arrangement. Nearly 60% of assets traded stemmed from corporates, while circa 20% came from institutional vendors including Charter Hall and GPT.”
Retail$4.26 billion in retail assets transacted in Australia throughout 2020, down 39% on the previous year and representing the lowest total transaction value for the retail investment market.
The highest level of retail investment activity in 2020 was recorded in the Neighbourhood sub-sector; 35 neighbourhood assets transacted for a combined total $1.50 billion equating to approximately 35% of the total retail investment market by dollar value.
Lachlan MacGillivray, Head of Retail Investment Services at Colliers International said, “In the early months of the pandemic, the implementation of the Code of Conduct for Commercial and Retail Tenancies had a substantial impact on rent collections for retail landlords.”
As a result of these risks, transaction volumes were impacted significantly during the second quarter – with deal-flow only starting to improve in the third and fourth quarters, as rent collections appeared to be recovering and most of the Code of Conduct requests were finalised.”
“Neighbourhood and large-format retail centres were favoured by investors for their stable income streams and accounted for over half of the sales in 2020.”
“Institutional investors were the most active purchaser group by dollar value, accounting for 52% of total retail transactions, a slight increase year on year from 41% in 2019.”
“We expect a significant increase in major asset transactions >$150 million in 2021. The return of stabilised trading conditions, complimented by attractive relative value return metrics and limited key opportunities will be a big market driver.”
HotelsAn uptick in activity during the last quarter of 2020 saw hotel transaction volumes total just over $900 million for the year and with several larger deals still currently in play. Total annual transactions were well below the long-term average of $1.6 billion and the lowest annual transaction volume since 2008 and the peak of the Global Financial Crisis.
Colliers’ report found that deal flow has primarily comprised smaller assets being acquired by private investors with only two transactions above $100 million. The average ticket size averaged $34 million; a decline of 25 per cent compared to 2019.
Gus Moors, Head of Hotels at Colliers International said, “Closed international and state borders brought great uncertainty about future trading of hotel assets, which resulted in many investors adopting a ‘wait and see approach’ to investments.”
“Deals which did occur took longer to complete with a higher level of scrutiny from financiers and the Foreign Investment Review Board.”
“However, a quantum of transactions did occur during the second half the year which has led to greater price discovery in a post-COVID environment. The ongoing active role of foreign capital in Australia’s hotel investment market will continue to be crucial to underpinning valuations over the near term.”
“In 2021, we anticipate increased transaction activity in the second half of the year, as buyers and sellers formulate greater clarity around the future trading outlook, following the wind-back of government stimulus and the roll-out of the vaccine program both nationally and internationally.”