Commercial Property Investment Market

February, 2020

  • PDF
  • Commercial
  • Industrial
  • Retail
  • Research

Update of the investment market in the major commercial property sectors over 2019 and outlook for 2020.

Property investment market 2019

Global economic uncertainty, trade wars, political turbulence and share market volatility plagued 2019, but this has meant historically low interest rates, the continued rise of e-commerce, government spending on infrastructure and tax cuts. The impact on Australian commercial property during 2019 was mixed and this is expected to continue into 2020.

Australian property has been a beneficiary of offshore and local investment demand as investors sought a safe haven and yield in the absence of comparable returns from share markets and historically low cash and bond rates.

Overall, office property in Melbourne and Sydney and industrial property in Sydney, Melbourne and Brisbane were the outperformers in 2019. Retail assets weighted towards nondiscretionary-spend tenancy profiles have fared best in a retail market still adjusting to being part of a highly competitive global market dealing with e-commerce headwinds and low household consumption.

The office sector in Melbourne and Sydney continued to show low vacancy and both rising rents and values have attracted investor interest. Industrial too has been very positive in 2019, driven largely by e-commerce, which has seen the best growth in the sector for a decade.

Yields, which had appeared to have bottomed earlier in 2019, have continued to firm across office and industrial markets while retail yields witnessed some easing with standalone supermarkets the best retail performer.


Andrew Duguid

Managing Director

View Profile > NSW
Shaun O'Sullivan


View Profile > VIC

Recent Research

Insights - Industrial rents have continued to climb

March, 2022

View Publication > PDF
Insights - Commercial Sales Turnover Hits Record High

January, 2022

View Publication > PDF
Specialist Disability Accommodation (SDA) in Australia

December, 2021

View Publication > PDF

The office sector sees record high sales activity

The office sector has been the sector to benefit the most from the low cost of debt environment over 2019 with sales activity surpassing the 2018 year totals to reach a new record high, since records commenced at m3property, of $23.17 billion worth of sales (over $5 million in value).

Fundamentals varied across office markets but strengthened overall. In many markets, tenant demand witnessed the greatest growth coming from the technology sector and co-working/serviced office tenants.



The outlook for the office market is mixed in 2020. The vacancy is expected to rise in Melbourne, Perth and Adelaide CBDs due to new supply additions, despite solid demand forecasts. Sydney and Brisbane CBDs are likely to see a tightening of vacancy over the year as withdrawals continue to keep net supply levels low. Total returns are forecast to remain positive over the next 12 months, albeit varying by state.

The retail sector faces more headwinds

The retail sector has been challenged by low wages growth, continued online retail competition and negative consumer sentiment.

Sales activity was moderate over 2019 compared to recent years, at $6.82 billion, with several transactions towards the end of the year occurring at discounts to book value.



While it was a challenging year for retail property, many of the owners have undertaken refurbishments of key centres and activity in these refreshed centres has been positive. Standalone supermarkets and hardware stores were the best performers over 2019, with solid trading conditions keeping rent growth positive and long-term leases keeping investor demand strong.

Despite further tax cuts, another interest rate decrease and an improving residential market expected in 2020, the outlook for retail is still weak. The weak outlook is due to the impact of the bushfires and the Novel Coronavirus (2019-nCoV) on tourism to and within Australia and consumer confidence and spending over the next three to six months.

Industrial sector sales activity down from record high

Sales activity in the industrial market was solid over 2019. However, it didn’t quite reach the record heights achieved over 2018, with $5.25 billion worth of sales transacting over the year.



Land remains sort after in most states and the price of land has, therefore, skyrocketed in many markets over 2019. Sydney led
the pack with growth of 18.5%.

The continued growth of online retailing has helped drive the strong performance of the industrial sector making it arguably the best performing of the sectors when looking on a national basis. While overall growth is likely to slow over the next 12
months, it is expected to remain positive.

Yield Outlook

We expect to see some further tightening of yields into 2020 across well-located CBD office and industrial assets with long WALEs. The lack of stock may also be a factor with landlords holding tight to assets which continue to provide comparatively decent returns.



Cautious sentiment towards the retail market and limited investor demand for retail assets is expected to continue over 2020. Retail property yields will most likely be stable or continue to soften, particularly for secondary assets, with values also under pressure from declining income growth projections. We expect an increase in investor activity and appetite for retail assets with a capital value of less than $50 million supported by the low cost of debt, however, investors for larger capital value assets are at this stage unwilling to accept lower investment return hurdles.

The office market nationally is likely to see yields tighten by a range of 0-25 basis points over 2020. Despite vacancy expected to rise nationally over the year, due to rising supply levels, investor demand is likely to remain buoyant due to Australian yields remaining attractive on an international basis and in comparison to the cost of bonds and debt.

Industrial yields nationally are also forecast to tighten by 0-25 basis points over 2020 for prime space. This is due to the gap between yields and bond rates and an expected further decrease in the cost of debt over the year.