Australian Financial Review
A series of trades in landmark office towers has helped propel the tally in commercial real estate deals for the 2019 financial year to a record $42.6 billion, a 22 per cent increase in transactions value over the previous year.
The Cushman & Wakefield figures also reveal that deal flow in office property increased by 22.6 per cent to $23.1 billion, accounting for more than half of all commercial property deals.
Driving those office deals are record low vacancy rates in the Sydney and Melbourne office markets, which is underpinning growth in rents, creating upside expectations for for investors.
At the same time, even though office yields remain low, they remain relatively more appealing for investors compared to bond yields, which have fallen significantly over the past year.
The financial year finished with a run of headline deals including Dexus’ acquisition of the 80 Collins Street precinct in the Melbourne CBD for $1.476 billion from QIC, topped only by Scentre’s sale of its towers above Westfield Sydney to Blackstone for $1.52 billion last month.
“Investment in Australian commercial property remains in strong territory, with sustained investor demand for office assets across the country as rents ran higher and vacancies tightened,” said John Sears, Cushman & Wakefield’s head of research for Australia and New Zealand.
“We saw landmark office deals in Sydney and Melbourne recently completed and the pipeline remains strong.
“In Brisbane, the investment outlook remains positive and a number of office assets are commanding strong investor interest and are likely to transact in Q3.
“With the bond yield falling around 130 basis points in the 2019 financial year and office yields remaining steady, the relative attraction of these assets also helped buoy investor demand.
“However, we are not yet calling the bottom of the yield cycle. Solid rental growth, improving funding costs plus the blowout in the spread to bonds suggests there is still room for commercial yields to decline further.”
Office investment volumes were highest in NSW, which recorded a total of $10.2 billion in the 2019 financial year.
In Sydney CBD prime gross effective rents grew 9.1 per cent in the 12 months to June 2019, well above the long-term average, while vacancy declined to 4.1 per cent.
Transactions were also buoyant in Sydney’s metro markets, including the acquisition by Starwood Capital and Arrow Capital Partners of the Zenith Centre in Chatswood for $438.2 million, a record price for an office asset outside of the CBD.
In other big Sydney metro deals in recent weeks, Hong Kong billionaire Francis Choi’s Early Light bought the remaining half-stake in North Sydney’s Northpoint Tower for $300 million, while Singapore’s Suntec’s made a $297 million purchase of 21 Harris Street in Pyrmont.
Article appeared in The Australian Financial Review on 8 July 2019.
Article written by Nick Lenaghan.