_65% of deals in Australia’s capital markets have progressed or completed since March
Turnover in Australia’s Eastern Seaboard capital markets is lower post COVID-19, but deals are progressing, according to our Capital Market Insight August 2020.
The report found 31% of deals underway in March have now settled or are unconditional, 34% are progressing and just under 10% have been put on hold.
However total turnover across the office, industrial and retail markets over the first half of 2020 was $10.37 billion, 43% below the $18.26 billion recorded over the same period in 2019.
Knight Frank Chief Economist and Partner Ben Burston noted 2019 had been a standout year in terms of capital market transactions, particularly in the office market, but turnover in the first half of 2020 was still down by 36% from the 2016 to 2019 average.
“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,” he 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.
“The in-favour industrial sector had turnover of $3.71 billion in the first half of this year, only 10% less than for the same period last year, and the highest completion rate for deals of 47%.
“Looking ahead, while the economic outlook remains highly uncertain, we expect a gradual recovery in liquidity in the office market as investors adjust to the new environment. Core real estate will remain highly sought after but greater priority will be given to stability and length of income and this will favour prime assets than can easily adapt to social distancing and cater to changing occupier requirements.
Knight Frank National Head of Agency Ben Schubert said practical limitations and knocks to confidence has seen transactions take longer to complete post COVID-19 than usual, but deals were being done.
“While not all of the deals in progression will necessarily come to fruition, it has been encouraging to see transactions continuing to progress through the COVID-19 impacted period,” he said.
“There was a notable improvement in confidence and activity across Australian markets during May and June, but we have seen a slowdown since the second wave emerged in Victoria in early July.
“While more than a quarter of assets on the market in March have now been withdrawn, there have been new campaigns commenced, with 15 new asset disposals underway in July, which have emerged since March.”
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.
“The level of completions in the Brisbane market sits at 46%, with only 21% reported as being withdrawn from the market.”
The Knight Frank research found smaller deals in the capital markets of Australia’s 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,” said Mr Roberts.
“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.
“For institutional-grade assets of $50 million-plus there remains strong buyer interest, currently concentrated in core assets with limited short-term tenant risk, but these deals are taking some time to complete, with more than 75% still in progress.”