Guy Bennett, Managing Director, Cushman & Wakefield
With higher interest rates, increased economic uncertainty and geopolitical tensions continuing to frame 2023, Cushman & Wakefield’s new managing director said transaction rates are set to be lower than the records set in 2021, but that more stable rates and inflation will help ease uncertainty.
Guy Bennett, Cushman & Wakefield’s new Managing Director CRE Australia and New Zealand said transaction volumes of $43.6 billion last year was the third strongest on record, only surpassed by 2021, with volume of nearly $54 billion and 2019 with $45.5 billion.
“2021 however, was lifted by strong interest during the pandemic in the logistics sector,” he said.
‘”This included the record setting acquisition of the Milestone portfolio by ESR for $3.8 billion, Blackstone’s $2.1 billion investment in the Dexus Australia Logistics Trust and the $1.65 billion Moorebank Logistics Park purchase by Logos Property Services.
“However, the interest rate rises and increased economic uncertainty of 2022 did impact the market, lifting funding costs as well as putting upward pressure on discount rates and yields, resulting in slower decisions and price expectation readjustment.”
Mr Bennett said the office market has traditionally been the sector with the highest transaction volumes, however, in recent years the industrial and logistics sectors have been challenging that, while interest is building in alternate commercial real estate sectors like healthcare and social infrastructure.
“The tail winds that have favoured the logistic sector in 2021, such as online sales growth and supply chain modernisation and rationalise aren’t going away and should continue to support this sector. We view increased interest and activity in the alternative sectors also,” he said.
Mr Bennett said higher rates, increased economic uncertainty and geopolitical tensions have prompted some investors to delay decisions, so volume is unlikely to challenge the records set in 2021 until interest rates and the economic outlook stabilise.
“Markets are still pricing in a few more interest rate rises this year, though the cash rate is expected to peak at a bit over 4% in Q3,” he said.
“Also, there are signs that inflation is moderating; for example, oil prices are stable and supply chain pressures have eased.
“More stable rates and inflation should help ease some of the uncertainty from markets, so I’m hopeful things will be looking up in the second half of the year.”
Mr Bennett noted that there is still plenty of capital searching for assets but said we can sometimes get overly focussed on our own market and forget how it compares to others.
“Australian commercial real estate is expected to remain relatively attractive compared to many overseas markets, supported by our comparatively favourable economic outlook, an expectation that interest rates will stabilise in 2023, competitive yields and an open transparent market,” he said.
“For example, Australian office yields are higher than many overseas markets, and forecasts from Moody’s Analytics suggest that of the world’s major economies, only China and India are expected to have stronger economic growth over the next 10, 20 and 30 years.”
Mr Bennett said in a period of uncertainty, better-quality, well-located properties usually outperform.
“While economic growth is generally forecast to remain positive, growth is expected to be slightly lower than the past few years and, in an environment of greater uncertainty, well located prime properties with strong tenancies are likely to attract greater investor interest,” he said.