Follow the money: Private investors are going big on commercial property

Private investors were the most active buyers in commercial real estate for the first time in Australia in 2023, according to Knight Frank’s The Wealth Report.

Private groups poured $14.8bn in Australia’s commercial market, equating to 42.2 per cent of total investment, a 12 per cent jump on the 30 per cent share in 2022, The Australian reports.

The share of private investors was up despite overall investment in the nation’s commercial property market nearly halving in 2023 from the previous year, falling from $64.1bn in 2022 to $35.1bn in 2023.

Globally, private capital remained the most active buyers in the commercial property market for the third consecutive year, investing $US338bn ($516m). This equated to a 49 per cent share of total investment – the highest share on record.

Although globally private investment in 2023 also nearly halved on 2022 volumes, falling by 46 per cent in 2023 to $US698bn, this was a smaller contraction than institutional and public investment, both falling by 53 per cent.

Knight Frank Australia chief economist Ben Burston said private investors took centre stage locally as larger groups paused.

“While major institutional and cross-border investors have taken a step back for the time being on account of high debt costs and protracted uncertainty over the outlook, private investors tend to be less reliant on debt and more opportunistic in focus, and this has enabled them to be more active,” he said.

‘Positioned for recovery’

Mr Burston said that private investors had positioned themselves for a recovery in the commercial property market, which would start to emerge locally later this year.

Knight Frank national head of capital markets Justin Bond said that with interest rates expected to remain high globally into the second half of this year, the firm anticipated private capital to remain active.

“Indeed, during previous times of dislocation, private capital has typically rotated back into commercial real estate,” he said. “In Australia, we also see interest from institutional capital from Singapore, Japan and some parts of Europe, with the expectation of increased transactional activity in the latter part of 2024.”

This story was originally published by The Australian.