Australia's commercial property market rebounds with $11.8 billion in Q2 2024 transactions

• Transaction volume recovery: Q2 2024 volumes, although 27 per cent below the five-year average for the second quarter, indicate a significant recovery. This resurgence is driven by pricing adjustments, particularly for office properties, following substantial valuation write-downs.
• Monthly property fund index results: The overall index fell by 13.8 per cent over the 12 months to June 2024, with office specialist funds experiencing a 19.5 per cent decline. Total returns for the index were -10.4 per cent, the worst annual result since 2009. All fund types recorded write-downs, with industrial and retail funds seeing capital growth of -8.6 per cent and -7.2 per cent, respectively.
• Deal price increase: The average deal price across all sectors increased by 27 per cent compared to H1 2023, aligning the market with five-year averages. However, deals below $10 million dropped by 29 per cent, indicating smaller investors remain cautious. Conversely, deals between $10 million and $100 million rose by 3 per cent.
• Sector performance: The industrial sector recorded the highest transaction volumes in Q2 2024 at $4.6 billion, totalling $7.7 billion for the year. Despite a 11 per cent year on year (YOY) decline for Q2, volumes matched H1 2023. The office sector saw a significant increase in the average price paid for assets, with Q2 2024 volumes reaching $3.6 billion, up 81 per cent YOY. Major office deals included Keppel REIT’s $364 million acquisition of a 50 per cent stake in 255 George Street, Sydney, and Cbus Property’s $296 million purchase of 5 Martin Place, Sydney.
• Retail sector growth: Retail sector volumes increased by 1 per cent YOY for Q2 and 11 per cent for H1 2024, driven by acquisitions of neighbourhood and sub-regional shopping centres, which surged by 36 per cent compared to H1 2023. The average ticket size for retail acquisitions rose to $10.5 million from $6.4 million in H1 2023.
• Overseas investment surge: Overseas investment in Q2 2024 reached $3.1 billion, a substantial rise from $875 million in Q1. While still 12 per cent below Q2 2023 levels, this indicates positive overseas investor sentiment. Japanese investors were the top source of capital, deploying $1.4 billion in Q2 2024, driven mainly by Mitsui Fudosan’s investment in 55 Pitt Street. Conversely, Singaporean investments remained muted, with allocations of $780 million in H1 2024.

• Sydney and Melbourne dominance: Sydney and Melbourne remain the most active markets, with Sydney office transactions leading at $3.1 billion, a 100 per cent+ annual increase. Brisbane is also climbing the ranks with significant activity in its industrial and retail sectors.
• Industrial and retail sector stability: The Sydney industrial market continues its strong performance, with $2.5 billion in transactions in H1 2024. Retail funds have fared better than office funds, with a fall in values of 11.2 per cent.
• Land lease sector growth: Notably, the land lease sector saw significant investment, with transactions just under $1.8 billion in 2024, driven by acquisitions from Mirvac and Stockland.

Australia's commercial property market is exhibiting resilience and signs of recovery, nearing the bottom of its current cycle. Yield expansion is beginning to subside, and investor confidence is returning, especially in the office and industrial sectors. Despite ongoing challenges, the market's recovery trajectory is positive, aligning with global trends and signalling a brighter future for the real estate sector.