Commercial property sales plummet as credit market squeeze hits

Sales of office towers, shopping centres and industrial properties have plummeted by 65% in the last few months, new commercial property research shows.

Sales of office towers, shopping centres and industrial properties have plummeted by 65% in the last few months, new commercial property research shows.

The big drop in sales comes as the number of companies in Melbourne and Sydney vacating unused floor space and subleasing offices rises sharply.

Up to 80,000 square metres in the Sydney CBD – 2% of the city’s total floor space – is up for sub-lease, while 20,000 square metres are up for offer in Melbourne.

Collapsed stockbroker Opes Prime has put two floors on Collins Street in Melbourne up for sale, while a division of Citigroup has put 3500 square metres on the market.

In Sydney, Macquarie Group – which is set to slash 1000 jobs – has placed space at 130 Pitt Street on the market. Insurance Australia Group has put up 7000 square metres after shedding 500 workers.

Babcock & Brown is attempting to sub-lease two floors, while Allco Finance Group and AMP are sub-leasing several floors.

But the empty offices may be on the market for a while – new CB Richard Ellis figures reveal a 65% drop in the value of commercial property sales this year, dropping from just over $16 billion to under $6 billion. New data from Colliers International shows a 70% decline in the number of transactions for CBD office buildings.

CBRE says commercial property sales are at their lowest level since 1994.

David Green-Morgan, research director for property research firm DTZ Research, says the market has definitely hit a low point.

“It’s really because there’s been a complete drying up of buyers, and that’s all due to the seizing up of credit and debt markets. Another reason, in Australia in particular, is because there’s been reluctance by sellers to reduce the price of properties.”

Green-Morgan says that by next year, more sellers will be more realistic about market prices.

“I think you have to view the end of 2006 and 2007 as exceptional years. The market is not going to return to that level of activity or those sorts of prices in the short or medium term. We suggest we’ll be back to the long term average during 2010 and 2011.

“Property will gain in attractiveness to investors because equities are still volatile, interest rates globally are heading to almost historic levels and for investors to get any sort of return or capital, property is one of the few places that we think they can look at.”

But it’s not all bad news. Melbourne developer Pan Urban, which is owned by the wealthy Schwartz family, says it will start construction of a new tower after strong sales.

The A’Beckett Tower in Melbourne will contain over 287 apartments, with 95% already sold. Construction will take 23 months.

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• Commercial property feels the squeeze