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Office, retail investment sinks in 2020 as pandemic hobbles demand

David Green-Morgan, RCA’s managing director for Asia Pacific, said with Australia’s success in containing COVID-19 there was an expectation for signs of some improvement in deal activity, but the fourth quarter was especially weak.

“There were some bright spots in the market but overall it was a disappointing year for Australia,” Mr Green-Morgan said.

“It was a mixed picture for capital flows into Australia. Singaporean investors largely kept pace with their spending in previous years, with about 25 per cent of all inflows, despite the challenges of executing deals during the pandemic.”

The RCA report indicated that European investors upped their activity, with the $2.1 billion acquisition of the Urbanest student housing portfolio a standout deal. Investment from the United States and Canadian investors all but evaporated in 2020.

Benjamin Chow, RCA’s Analytics manager for Asia Pacific, said not only have US investors dialled down their acquisitions in Australia, but they have been actively selling.

The report said there was also a shift in emphasis among property developers who moved away from residential developments towards the popular industrial property sector and a marginal amount willing to go into office and retail sites.

In the fourth quarter of 2020, a below average 43 per cent of developers said they were targeting residential developments, down from 53 per cent in the September quarter, but more were planning to start new works in the industrial sector.

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This was also borne out in the latest National Australia Bank’s Commercial Property Index, which reveals that the core property sectors, while showing some recovery, remain under pressure.

NAB’s Commercial Property Index is based on expectations for capital values and rents, and while it lifted for the second straight quarter, it was still weak, down 35 points and well below average zero base points.

Industrial property sentiment rose sharply, up 25 points, supported by ever-growing demand in online retail and continued requirements for available warehouse and logistics space.

Alan Oster, NAB’s group chief economist said there were some bright spots in an otherwise torrid year.

“Investment in industrial properties inched up due to increased interest in data centre and logistics facilities, mirroring a trend seen across major Asia Pacific markets,” Mr Oster said.

“A few alternative sectors, notably student housing and medical offices, surged ahead, while demand for pubs and convenience retail held up better than the broader market.”

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