THE Western Australian commercial property market has defied the COVID-19 pandemic, with $5.303 billion worth of assets changing hands over FY20, an increase of 48.79% on last year.
According to Ray White Commercial’s latest research, in late 2019 the market was charactirised by a number of bigger ticket transactions but in the first half of 2020, the smaller end of the market (sub $5 million sales) highly featured in the industrial sector driven by local private buyers.
Despite concerns surrounding the future of workplaces in a post-pandemic world, office investments jumped by 51.85% to $1.906 billion. Ray White Commercial head of research Vanessa Rader said this reflects the improved confidence in the state’s economy and optimism for the Perth office markets which have been recently plagued by high vacancies.
“We have seen institutional buyers believe in the Perth market; local syndicates and private buyers also continue to show faith in this market and the affordability given the higher yields which WA offers compared to east coast office markets. Given the local time zone, Perth is often attractive to offshore Asian buyers, with this year no different with the sale of BGC Centre (28 The Esplanade, Perth) for close to $103 million to Singaporean group Redhill Partners in late 2019.
“Looking ahead, the Perth office markets are heavily reliant on the mining/engineering sector more so than professional services which have been under pressure due to the COVID-19 pandemic. The continued infrastructure investment into the state and continued increase in exports will ensure WA as an economy is well placed to weather the COVID-19 storm and outperform other economies,” Rader said.
Industrial transactions rose by 7.97% to $1.133 billion with over half of this volume transacted in the sub $5 million market, highlighting the appetite for smaller assets by both local investors and owner occupiers. In contrast, institutional activity has been lacking this year with only six sales recorded over $20 million.
Rader said with interest rates now at a record low, she expects this trend to continue particularly as industrial is the asset class which is expected to come out post COVID-19 most unscathed.
“This heavily due to the growing need for storage and distribution of goods while local manufacturing requirements have also seen some minor uplift,”
Despite the challenges faced by retailers, it was a record year for retail transactions in WA, although that was distorted by the landmark sale of Westfield Booragoon for a reported $1.14 billion (4.7% yield), which took the tally to $1.952 billion.
Westfield Booragoon“We have seen a growth in small retail centre transactions this year as investors look for local shopping options with supermarket anchor. In 2020 we saw a number of centres change hands including Armadale Shopping City for $110 million in February followed by Midland Megaplex which sold in March for $58 million on a reported yield of 6.5% to a local private investor group.
“Looking ahead, increases in vacancies seem inevitable for this market as many businesses will struggle to keep bricks and mortar shop fronts as delivery, online and take away options become increasingly attractive,” Rader said.
The hotel market was more subdued with transactions totalling $117.17 million, down 52.26% from last year.
“There has been a strong effort by the WA government to grow tourism into the state which has been set back due to the COVID-19 pandemic. Since March we have seen all domestic hotels reduce their occupancy considerably which has also hampered average daily room rates, despite this, the Perth market has faired better than any other Australian city given the strong employment derived from the “fly in, fly out” workforce which could not leave the state taking up short term accommodation options.
“As at May 2020, Perth hotel occupancy continued to trend ahead of any other Australian city. While occupancy was only 30.7%, less than half that of the same period in 2019, average daily room rates remain the most expensive in the country at $128.80,”
Childcare and medical centre transactions also declined by 16.85% to $96.933 million.
Rader said there has seen an uptick in enquiry for medical premises, these come in various forms, be it strata specialist suits, medical centres, private practises or hospital facilities.
“With our aging population, the need for increased medical facilities have been high, but more so we has seen an increase in demand for specialist services targeted at a younger demographic notably in the area of sports medicine, cosmetic and alternative therapies.
“These assets usually attract investors seeking long leases to tenants who have a high standard of cleanliness and hygiene, which will become of even greater concern in the post COVID-19 economy. We anticipate an increased need for these assets in the short term with savvy private buyers actively pursuing these keeping investment yields competitive.”
Rader said the outlook for the Australian economy may be bleak as the impacts of stimulus, unemployment will substantially affect the nations GDP, but WA is well positioned for a rebound.
“The mining sector continues to be robust as export demand continues, so too the investment into infrastructure which will aid the growing unemployment position. Low interest rates will be a feature of the market for some time which will further encourage investment activity as banks start to compete for businesses and investors look for alternative investments after recent volatility in the share market.” Rader concluded.