Australia Real Estate Trades Rose 11% in Q3 as Recovery Gathers Steam: MSCI

Transactions of income-generating real estate in Australia rose 11 percent to A$8.2 billion ($5.4 billion) in the third quarter compared with year-earlier levels, signalling positive momentum in the market after two lacklustre years, according to MSCI.

While deal volume remains 30 percent below the five-year average, year-to-date activity climbed 12 percent year-on-year to A$23.8 billion, the data provider said in its Australia Capital Trends report. Full-year volume is tracking to exceed 2023 levels if pending transactions valued at A$2.9 billion reach a close before year-end, the report said.

The country’s office sector notably saw deal volume shoot up 61 percent year-on-year in the July-September period to A$2.8 billion. MSCI pointed to transactions like PAG’s A$315 million acquisition of 367 Collins Street in downtown Melbourne from Mirvac as a sign of improving investor confidence, with the Asian private equity firm having picked up that asset at a 26 percent discount to its June 2022 valuation.

The Australian central bank’s decision to keep a key rate at 4.35 percent since last November, while hinting at possible cuts in early 2025, has helped narrow the pricing gap between buyers and sellers, said Ben Martin-Henry, head of Pacific real estate research at MSCI.

“For example, according to our MSCI Price Expectations Gap analysis, the buyer-seller pricing gap for Sydney offices has reduced to -6.7 percent, down from -21.6 percent at the end of 2023, a sign that valuation adjustments are aligning market expectations,” Martin-Henry said.

Upbeat Office Market

Office volume in the year to date was led by Mitsui Fudosan’s A$1.3 billion buy of a 66 percent stake in Mirvac’s 55 Pitt Street near the Sydney harbourfront. Other big-ticket office deals closing in the first nine months included German fund manager Deka Immobilien’s purchase of 333 George Street in Sydney from Charter Hall for A$395 million and Singapore-listed Keppel REIT’s acquisition of a half-stake in 255 George Street from Mirvac for A$363.8 million.

Retail deals also surged, rising 24 percent year-on-year in the third quarter to A$2.1 billion and bringing year-to-date transactions to A$6.9 billion, up 43 percent. Key deals in the year so far included Vicinity Centres’ A$420 million pickup of a half-stake in Perth’s Lakeside Joondalup Shopping City from the sovereign Future Fund and Fawkner Property’s A$390 million buy of the Cairns Central Shopping Centre from Lendlease.

MSCI sees the retail rebound spreading from daily-needs-driven retail hubs at the community level into the wider market.

“Whilst grocery-anchored centres have driven retail activity in recent years, the demand has broadened to include regional, major, and super-regional centres, driven by population growth and anticipated rate cuts in 2025,” the report said.

Industrial deal levels dipped 2 percent year-on-year in the third quarter to A$2.6 billion, with a big chunk of the total coming from the A$600 million buy of Melbourne’s Austrak Business Park by pension fund Aware Super and Barings.

Foreign Investment Mixed

Overseas investors deployed nearly A$3 billion into Down Under real estate bets in the third quarter, easing 5 percent from a year earlier. Year-to-date foreign-led volume hit A$7.1 billion, matching levels during the same period last year, but 2023 also marked the quietest full year for overseas investment in Australia since 2012, according to MSCI.

Overseas capital accounted for 35 percent of third-quarter volume, the highest quarterly share of 2024, with US investors contributing nearly a third and European players expanding their investments significantly, the report said.

Martin-Henry observed that transaction yields across most major sectors showed less expansion in the third quarter. Sydney offices recorded a compression of 4 basis points, suggesting that the bottom of the cycle has been reached.

“Overall, Australia’s commercial property market is on a promising path to recovery, driven by stabilising economic conditions, increased core sector performance, and rising interest in alternative assets,” the analyst said. “Sustained investor confidence, both domestically and internationally, will play a key role in the sector’s recovery trajectory in the months ahead.”