This article is from the Australian Property Journal archive
WHILE commercial property sales were unimpressive over the first quarter, investor confidence and activity is expected to pick up for the rest of the half.
According to JLL’s preliminary Q1 2024 commercial property sales results, sales volumes came in at $4.05 billion for the period, which is down 14% below the levels reached in the same period of 2023, where $4.72 billion was transacted.
“The first quarter of any year is typically 45% lower in terms of transactions compared to the remainder of the year,” said Luke Billiau, head of capital markets at JLL, Australia and New Zealand.
“This trend can be attributed to the business planning cycle, where many organizations tend to finalize and execute transactions in the second half of the year, but there are several major sales that will come through in 2Q 2024 boosting the results.”
Over the quarter, retail sales volumes came in at just $535 million after an unusually strong result in Q4 2023, where almost $3 billion transacted.
While industrial investments were up 71% from the same period in 2023, from $1.46 billion to $2.50 billion.
With office down around 50% from $2.06 billion in Q1 2023 to $1.00 billion in Q1 2024.
“Overall, the sentiment feels generally disconnected from what the volumes are showing for 1Q. The feedback from capital we’re engaged with is more positive across most sectors so we are encouraged that the market will be more stable this year,” added Billiau.
“While the bid-ask spread remains, what is apparent is that more vendors are willing to test the market now that some major transactions have closed and there is more evidence. Overall, the market is expected to become more stable this year as debt costs fall and valuations stabilize.”
Active capital is largely offshore and primarily from Singapore, with Billiau noting there is very little pressure on vendors to accept opportunistic pricing.
The New Year period seemed to have provided lenders with a renewed sense of optimism with conversations pointing to a more positive outlook for financing as the year progresses,” said Josh Erez, director of debt and structured finance at JLL, Australia.
“However, the office sector remains challenging for lenders, with only Premium and A-Grade assets receiving anything more than a lukewarm response from bank lenders.”
Erez also noted non-banks are filling the office funding gap in non-CBD locations and in the market to cover valuation declines affecting LVRs, vacancies causing income pressures and in turn Interest Cover Ratios (ICR).
“The living sectors, whether BTR, BTS, PBSA or others are firmly back in vogue alongside the continued favoured kid on the block, being industrial and logistics assets,” added Erez.
“We are cautiously optimistic for the year ahead that greater certainty in base rates, as well as valuations finding a floor, will give rise to financing activity across the board in 2024 where it was fairly muted throughout the majority of 2023.”
