MSCI Australia Capital Trends report for 2024
By Benjamin Martin-Henry, Head of Private Assets Research, Pacific, MSCI
The MSCI Australia Capital Trends report for 2024 highlights a significant rebound in Australia's commercial property market following a subdued 2023. Transaction volumes in the final quarter reached $20.3 billion, marking the second-highest level for any quarter in 24 years and accounting for nearly half of the year's total. For the full year, transaction volumes reached $44.3 billion, a 46 per cent increase compared to 2023, aligning with the average of the past decade.
Key highlights
A major driver of this growth was Blackstone and CPPIB’s $24 billion acquisition of AirTrunk in the fourth quarter, with the property component estimated at around $10 billion. Even without this megadeal, the market recorded a 13 per cent year-on-year increase, indicating broad-based recovery across all major sectors. Portfolio deals also saw a significant rise, with $6.6 billion in transactions, demonstrating renewed investor confidence.
Geopolitical stability and the Reserve Bank of Australia's decision to maintain the official cash rate at 4.35 per cent contributed to this confidence. The MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index showed a 12-month total return of -6.4 per cent, driven by negative capital growth of -10.1 per cent. However, the fourth quarter saw a positive total return of 0.4 per cent, the first since September 2022, signalling a potential market turnaround.
Market trends and outlook
Transaction volumes increased across all core sectors compared to 2023. The office sector, which had struggled in 2023, saw volumes rise to $9.5 billion by year-end, driven primarily by the Sydney market. The retail sector recorded a 36 per cent increase in transaction volumes, with significant deals such as the sale of a 50 per cent share in Lakeside Joondalup Shopping City for $420 million. The industrial sector continued to lead in transaction volumes, bolstered by the data centre segment, which saw $13 billion in deals.
Overseas investment into Australian commercial real estate surged in 2024, doubling year-on-year, largely due to the AirTrunk acquisition. Without this deal, volumes would have remained flat, reflecting continued caution among overseas investors. APAC-based investors recorded significantly lower volumes, while Japanese and US-based investors increased their activity, particularly in the office and industrial sectors.
Sydney's industrial market was the most invested segment, driven by the AirTrunk acquisition and the sale of the former LOGOS portfolio. Sydney's office market also saw a strong rebound, with volumes rising by over 70 per cent. Retail emerged as the most represented sector in the top 10, with four markets making the list, indicating strong investor confidence.
Build-to-rent construction starts slowed significantly in 2024 due to rising construction costs and tighter financing conditions. Only 15 projects commenced, totalling around 4200 units compared to almost 7000 in 2023. Despite these challenges, the sector's fundamentals remain robust, driven by strong demand for rental housing and limited supply.
The retail sector showed signs of recovery, with three retail types recording yield compression in 2024. Regional centre led with almost 30 basis points of compression, followed by large format retail and the childcare sector. Conversely, big box retail and office markets experienced yield expansion, though the office sector showed signs of recovery in the fourth quarter.
The MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index indicated that retail funds led performance in 2024, delivering a 12-month total return of 1.7 per cent. Industrial funds also performed well, logging a total return of 1.4 per cent. Office funds, despite another challenging year, showed signs of nearing the bottom of their current cycle, with some funds recording positive total returns in the final quarter.
Conclusion
In summary, 2024 was a year of significant recovery for Australia's commercial property market, driven by major deals, renewed investor confidence, and sector-specific rebounds. The market's performance was bolstered by stability in interest rates and geopolitical conditions, with positive signs emerging across various sectors, particularly retail and industrial.