SA MARKET OVERVIEW
SOUTH AUSTRALIA
SA Market Overview with Max Frohlich
Reflecting on the last 6 months, what were some of the prevailing trends that you noticed and how did they play out in the market? The major trend in capital markets that has continued through H1 2023 is the rising cost and availability of debt and its impact on real estate pricing. With the movement in interest rates and an uncertain global economic environment, transaction volumes have slowed, and purchasers have been cautiously reviewing investment opportunities, pushing out capitalisation rates. This reflects the risk in the market and also ensuring acquisitions are accretive on a levered position. In the six months from March 2023, the Reserve Bank Australia (RBA) increased the cash rate 50 basis points, from 3.6% to 4.10%, leaving the cash rate unchanged for the second straight month through July and August. While the peak cash rate remains uncertain, the pauses demonstrate we are likely to be at or near a ceiling and that the RBA is becoming more confident they have done enough to bring inflation down to the 2-3% target. With inflation now moderating and the yield curve looking to trend down over the next 12 months, purchasers have gained renewed confidence to price prime assets closer to the cost of current debt, with the yield spread between prime and secondary continuing to diverge. Marketwise, what are you forecasting for the second half of 2023 and how will increased lending costs impact the various markets? Looking ahead, higher funding costs for property investors are a clear risk to the outlook. However, like most forecasts, we anticipate the rate hiking cycle from the RBA is at or near its peak and that interest rates are likely to attenuate through 2024-2025. Due to this, we expect the overall outlook for investors is starting to look more favorable following an extended period of uncertainty and an increase in transaction volumes and further clarity around asset pricing is anticipated. While interest rate pressures continue to dominate market sentiment, we are currently experiencing engagement from local, national and off-shore investors looking to place capital in Adelaide but
MAX FROHLICH Director, Institutional Sales Knight Frank
96 – August / September 2023
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