By Benjamin Chow on December 15th, 2020
Investors in Australia have poured more money into alternative property sectors than ever before during 2020, with the amount of capital spent on sectors such as student housing and data centers surpassing that of conventional office properties, the traditionally dominant investment type.
Australia’s commercial property market overall has had a muted year so far, as lockdowns and travel restrictions have taken their toll on both dealmaking ability and investor appetite. Over the past five years, deal volume across the first 11 months has ranged between A$43 billion and A$49 billion ($32 billion to $37 billion). This year, investment has fallen to just A$24 billion over the same period.
The pullback in deal volumes is reflected uniformly across traditional office, retail, and hotel property types, each of which plunged by over a half. Even investment in the vaunted industrial sector fell by a quarter after stripping out data centers.
Alternative sectors, meanwhile, have drawn A$7.7 billion in investment in the year through November, and their share of the total market has rocketed to 29% this year, from an average of 8% in the previous three years, Real Capital Analytics data shows.
Student housing and data center investments drew the most capital. Both notched around A$2 billion of investment each, generated by a handful of large deals as opportunities in these subsectors remain scarce. With the healthcare sector coming under the spotlight against the backdrop of the global health crisis, spending on medical office facilities has more than tripled to reach A$1 billion this year. The biggest deal so far in 2020 was the DEXUS acquisition of the Australian Bragg Centre in Adelaide for A$446 million.
Even in the embattled retail and hospitality sectors, two groups of properties have found favor this year. While investment into shopping malls has plunged by two thirds, demand for convenience retail leaped. In early December, APN Convenience Retail REIT announced another A$75 million investment in a portfolio of 12 service stations. Meanwhile, investment volume for pubs surpassed that of hotels and serviced apartments.
Not all alternative sectors are gaining traction, however. Investment volumes for seniors housing, self storage, and childcare facilities have all dipped this year. Nonetheless, the magnitude of those declines pales in comparison to the broader commercial real estate market in Australia.
Real Capital Analytics publishes Asia Pacific Capital Trends once a quarter. The next edition will be released February 2021. To learn more about how RCA’s reports, data and tools can inform your investment decisions, contact us.
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