Institutions and foreign investors buying up Melbourne offices

Foreign investors and local institutions have continued to drive sales of Melbourne offices over the first six months of the year, according to Colliers research. 

Foreign investors accounted for 38% of Melbourne CBD office purchasers over this period, almost a 20% rise from 2010.

Investment sales activity for transactions in excess of $20 million remained strong at the start of 2011, with seven buildings sold between January 2011 and July 2011 worth a total $569 million, slightly above the $543 million transacted from January 2010 to July 2010. 

The largest purchase by a foreign entity to date in 2011 was the acquisition of 595 Collins Street by US-based Primerica Real Estate Investors for $130 million from Investa Property Group

Another major transaction was the sale of 469 La Trobe street acquired by Malaysian-based CIMB Group, for $84 million in April 2011.

According to IPD Australia’s Property Investment Digest, annual capital growth within Melbourne’s CBD office market increased for the fourth consecutive quarter. 

Capital returns increased by 5.6% per annum in June 2011 while income returns increased by 7.5% per annum, taking total returns to 13.4% per annum. 

Research by Colliers also found the number and value of acquisitions by institutions within the Melbourne CBD office market has risen considerably since 2008. 

Notable institutional buyers include the Challenger Diversified Trust which bought 31 Queen Street for $81 million in February 2011. 

As the market recovers from the GFC, institutions have been actively acquiring properties from private investors since 2009, increasing their market share of real estate holdings in the Melbourne CBD. 

Investors continue to be attracted by stable rental yields with premium and A-grade office yields sitting between 6.50% and 7.75%. 

Looking ahead, the relatively stable and improving Australian economy is likely to cause a healthy rental market, which will likely drive the investment sales market. 

Interest is likely to remain stable, if not increase, and yields are likely to tighten further. As the imbalance in supply-demand continues, capital values are likely to increase.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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