Commercial real estate investment reaches new record high of $42.6 billion

Commercial real estate investment in Australia reached a new record level of $42.6 billion in transactions during the 2019 financial year (FY19), up 22% from the $34.9 recorded in FY18, according to Cushman & Wakefield research.

Their research showed, during the financial year, investment in office assets reached a new high of $23.1 billion boosted by a number of major transactions as the financial year came to a close.

The transactions they refer to are Dexus acquiring 80 Collins Street, Melbourne for $1.476 billion, and the sale of 100 Market Street and 77-85 Castlereagh Street, Sydney to Blackstone for $1.52 billion.

Office investment volumes were highest in New South Wales which recorded a total of $10.2 billion in FY19, with Sydney remaining the most active market for office transactions in FY19.

Cushman & Wakefield research shows that Sydney CBD prime gross effective rents grew 9.1% in the 12 months to June 2019, well above the long-term average, while vacancy declined to 4.1%.

Cushman & Wakefield’s Head of Research, Australia and New Zealand, John Sears, said, “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. 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 130bps 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,” Mr Sears said.

Foreign investment also trended higher in FY19, recording a total of $19.3 billion and accounting for 45% of all transaction volumes.

Multinational investors such as Blackstone were among the major sources of foreign investment into Australia, while Canada and Singapore were also prominent sources of inbound capital.

Cushman & Wakefield’s Managing Director CRE NSW, Simon Fenn, said, “The combination of stock withdrawal, the development of quality pre-committed supply and an unprecedented infrastructure spend is drawing both local and offshore capital.”

“With CBD stock unable to meet demand, investors are increasingly looking to metro areas that are also experiencing strong leasing conditions.”