Commercial investment tops $18.7 billion of sales to 3Q

AUSTRALIA – Australia’s commercial property market gained momentum throughout Q3 2024, with offshore investors, domestic institutions and private capital driving activity.

JLL’s preliminary figures for Australian transaction volumes in the office, retail and industrial sectors for the third quarter reached AUD 6.2 billion, marking a notable 40% increase compared to Q3 2023. Volumes for the first nine months hit AUD 18.7 billion, representing a 48% rise in sales volumes from the corresponding period in 2023.

Industrial topped sales volumes in 3Q 2024 at $2.2 billion, followed closely by office investments at $2.1 billion and $1.9 billion for retail.

The office sales volumes of $6.1 billion in the first nine months of 2024 is 61% up on the corresponding first three quarters of 2023 when $3.8 billion of sale were recorded.

Foreign investors are driving the rebound in office transactions and accounted for two of the top three office trades in 3Q24, including Germany’s Deka pending acquisition of 333 George Street for $395 million and Hong Kong’s PAG acquisition of 367 Collins Street for $315 million.

JLL Research found industrial continues to perform strongly with a 66% jump in sales to $8.3 billion in the first nine months of 2024 from $5.0 billion for the same period in 2023. Retail recorded a 12% increase in sales to $4.3 billion compared to $3.9 billion in the first three quarters of last year.

JLL’s Head of Capital Markets – Australia, Luke Billiau said the preliminary Q3 volumes JLL has tracked demonstrates another strong quarter of sales activity and further evidence of how capital markets are recovering.

“Momentum is clearly building across commercial property sectors and the office sector has been a major beneficiary. As we expected to see at the beginning of 2024, this reflects a higher conviction in the market and greater clarity with pricing,” Mr Billiau said.

“We believe the market is on track to record around AUD 28 billion for full year sales volumes, based on the activity in the first nine months and with Q4 traditionally the strongest sales quarter. This would see the full year volumes round out just below the 10-year average of AUD 31 billion and signals the market is rebounding.”

Mr Billiau said the two key catalysts for sentiment and transaction activity in Australia were reaching a peak in the interest rate cycle and finding a floor in the valuation cycle.

“While we’re close to the trough in valuations, the 50 basis point cut by the Federal Reserve is a positive step in the right direction that instils more confidence into real estate investors decision making, and adds to a number of other countries which have also commenced the monetary policy easing cycle.

“While Australia is likely to be more delayed than some global counterparts our official cash rate has peaked at a lower level (4.35%) and the futures market pricing currently suggests around 125 basis points of RBA cash rate cuts by February 2026 to 3.1%.

“Rather than waiting for those two key catalysts, we’re already seeing more groups building conviction in a number of sectors and around specific strategies which, in combination with an improvement in confidence, will lead to more capital deployment and investment activity in 2025,” Mr Billiau said.

JLL Head of Capital Markets Research – Australia Andrew Quillfeldt said: “Major liquidity drivers are opening up and leading to more activity as institutions manage balance sheets conservatively through divestments, reweight across sectors and as third party capital gains greater conviction around entry timing and the market outlook.

“The top five transactions by value this year have been dominated by superannuation fund and offshore buyers. Scale is becoming less of a hurdle, with 12 transactions greater than $300 million YTD, compared with eight in the same period last year.

“Investors are pivoting to strategies that can deliver the strongest growth potential to outperform in the next phase of the investment cycle. Strong population growth and challenges in delivering new supply are creating conducive market dynamics for above-trend rental growth over the medium term across most sectors.”

The largest sales transactions by sector for Q3 2024 were:

• Industrial: Austrak Business Park, 5-161 Hume Highway, Melbourne, was acquired by Aware Super and Barings from GPT Group and Austrak for AUD 600.0 million.

• Office: Han’s Group 338 Pitt Street development site in the Sydney CBD was acquired by Billbergia Group for circa AUD 500.0 million.

• Retail: Lakeside Joondalup (50%) in Perth was acquired by Vicinity Centres from the Future Fund for AUD 420 million.