MORE than one in four capital markets transactions across the eastern seaboard have fallen through since March, as the volume of industrial asset sales highlighted the sector’s resilience.
Knight Frank’s Capital Market Insight found 65% of deals in Australia have progressed or completed since March, with 31% settled or unconditional, 34% progressing, and 9% put on hold, while 26% have been withdrawn.
Brisbane’s proportion of completed deals is by some distance the largest on the eastern seaboard, at 46%. Sydney has had 27% withdrawn, the highest rate. One third of deals in Melbourne are on hold.
The industrial sector saw a relatively minor 10% dip in transaction volumes compared to the first half of 2020. Conversely, office sector deals have plunged 55% to just under $5 billion and retail deals by 45% to $1.74 billion.
Total turnover across the commercial markets over the first six months of 2020 was $10.37 billion, 43% below the $18.26 billion recorded in the same period of a standout 2019. The figure is still down by 36% compared to the 2016 to 2019 average.
The industrial sector had turnover of $3.71 billion, and the highest completion rate for deals of 47%.
“The continued limitation on domestic and international travel, plus the ongoing knocks to confidence as a result of COVID-19, has dampened activity in capital markets,” Knight Frank chief economist and partner, Ben Burston said.
“However, as anticipated, the essential nature of industrial, dominated by warehouse and distribution of non-discretionary items, has led to greater confidence in the occupier market outlook and seen investment in this sector remain the most resilient during 2020.”
Knight Frank national head of capital markets, Paul Roberts said Brisbane had seen the highest levels of completions, followed by Sydney and then Melbourne, with deal levels appearing to mirror the lockdown level in each city.
“To date Brisbane has been fortunate to have less time under restrictive lockdowns than its southern counterparts, which has buoyed activity,” he said.
More than 90% of completed deals in Brisbane have had a value of $25 million or less. Queensland’s current had border with New South Wales and Victoria will make larger sales more difficult. The research found smaller deals on the eastern seaboard were dominant, with sales of $5 million or under having a 56% completion rate for deals underway in March.
“This is not surprising, as smaller transactions are more likely to involve local parties, private investors and owner occupiers, all of which have been more nimble in a challenging environment,” Roberts said. “It has been more difficult to achieve completion on larger deals, where we typically see interest from interstate or offshore investors and more intensive due diligence processes.”
There remains strong buyer interest for institutional-grade assets of $50 million-plus, currently concentrated in core assets with limited short-term tenant risk. However, Roberts said these deals are taking some time to complete, with more than 75% still in progress.