Investors are viewing the national office markets as the most attractive place for cash as evidenced by the more than $5 billion of assets that have changed hands in the past year.
One of the latest is the sale of 59 Goulburn Street, Sydney, to the Chinese group I-Prosperity and Toga D&C for $158 million. The vendor was the Singaporean-based Roxy-Pacific Holdings. The sale was through Colliers International and JLL.
There is approval for a hotel and or/office space with ground-level retail on the site.
Taking advantage of the demand for high-quality assets is QIC Real Estate, which is selling its half-share of the MLC Centre, Sydney, worth about $300 million.
There are also suggestions that Brookfield Property is now looking to sell three 25 per cent stakes in its $1 billion Wynyard Place project, with the funds used to help with the development costs.
It comes amid a swath of sales in Melbourne, which have included 40 and 60 City Road, Southgate, worth a combined $340 million, Twenty8 Freshwater Place, Southgate, valued at $286 million and 100 Queen Street, worth $274.5 million.
JLL’s Australian head of research Andrew Ballantyne said investors navigating the Australian office investment landscape have opportunities to satisfy diverse mandates.
“Sydney and Melbourne can be classified as the high-growth markets. Asset pricing is reflective of the strong rental growth outlook with prime net effective rents projected to rise by 34.9 per cent in the Sydney CBD and by 18.7 per cent in the Melbourne CBD from 2017 to 2019.”
Yield spreads to Sydney and Melbourne have widened beyond historical benchmarks and new sources of capital are exploring opportunities to gain exposure to a potential market recovery.
“Real estate investors have shown a bias for low-risk assets. Adelaide and Canberra are the epitome of low risk with the volatility of returns typically lower through the cycle,” Mr Ballantyne said.
Rents for skyscraper offices in Australian cities, are rising faster than those in any other global city, according to the latest Skyscraper Index from Knight Frank.
The report examines the rental performance of commercial buildings over 30 storeys across the world.
Melbourne and Sydney grew the fastest among the cities surveyed at 11 per cent and 10.1 per cent respectively in the six months to the fourth quarter of 2016, amid tightening vacancies and limited new supply.
In Sydney, stock withdrawals to accommodate the new Metro line and residential conversions are reducing the overall supply, while Melbourne had the strongest level of net absorption in 2016.
Knight Frank’s head of office leasing, Australia David Howson said Sydney’s office vacancy is at 6.2 per cent, and is forecast to go as low as 3.5 per cent in the next two years, with the current low vacancy and prospect of even lower vacancy driving rental increases now.
“In Melbourne, the vacancy rate is at 10-year lows at 6.4 per cent,” Mr Howson said.
“Unusually for Melbourne in recent years, the level of new stock additions will be lower in the next 24 months at 113,242 sq m or 1.3 per cent stock growth per annum. This is well below the long-term average of 3.6 per cent per year.”