Government leases draw offshore investors to Canberra in strong six months of CBD office investment: Colliers

Both local and offshore commercial property investors have continued to pour money into Australian CBD office assets with around $2.4 billion worth of property changing hands so far in the first six months of 2012, according to new Colliers International research.

Year-to-date national office sales are on a par with the same time last year with Canberra notable for having racked up over $500 million in sales –accounting for a fifth of all investment sales, just behind Melbourne and Sydney.

In its latest series of CBD Office Research & Forecast Reports, Colliers International found that while global economic conditions remain delicate and uncertainty surrounds some leasing markets, investment in Australia’s CBDs remains strong.

Colliers International recorded 34 transactions with a combined value of $2.4 billion for the first six months of 2012, compared with 38 transactions Australia-wide with a combined value of $2.4 billion for the first six months of 2011.

Net effective rental growth was positive in all markets over the past 12 months, with the exception of the Melbourne CBD which recorded a decline, despite positive net absorption in this market.

“Across the board, we are seeing soft tenant demand in our CBD office markets, but this is not being reflected in investment demand, which, in general, is very strong,” says John Marasco, Colliers International managing director of investment services.

Simon Hunt, Colliers International managing director of office leasing, says improved levels of tenant demand are being recorded nationally.

“In the first half of the year we saw the gap between mining and non-mining driven markets widening, however, based upon an upswing in enquiry during July, we believe the disparity is unlikely to become any more pronounced in the second half of the year,” Hunt says.

“There are still deals happening in well-positioned and well-presented assets, with options that provide quality fit-outs requiring minimal adjustment leasing well, particularly up to 2,000 square metres

“Despite widely publicised cuts in the finance, retail and manufacturing sectors, the Australian unemployment rate fell in July and is currently at 5.2%. This has been reflected in positive net absorption in all CBD office markets.”

The highlight over the first six months of the year has been Canberra, which has recorded “outstanding investment growth”.

Marasco said Canberra CBD had shown exceptional performance over the first half of 2012, with a marked increase in foreign investment propelling total sales volumes to more than twice the amount record over the entire 2011 calendar year.

“This is the highest volume of foreign transactions in Canberra over the past four years,” Marasco says, with investors particularly attracted to ‘green’ buildings –highly sought after by tenants and in plentiful supply in Canberra.

About 82% ($308.89million) of the total sales volumes in Canberra ($504.07million) were to offshore investors, with the remainder bought by the government.

Steady investor interest has meant that yields for A Grade assets in Canberra have remained unchanged over the last two years, while B Grade assets have reached the bottom of the market cycle in over the first half of 2012.

Recent sales of such assets is 50 Marcus Clarke in Canberra, a 6-Star Green Star and 5 Star NABERS building which sold to CIMB Trust Capital, a Malaysian investor for $226 million - the highest Canberra sale in four years.

“Importantly, it had a 15-year lease to a Government tenant which is another key attraction in the Canberra market – secure cash flow is always in demand.”

Average A-grade net face rents in the Canberra CBD range from $375 to $425 per square metre with yields ranging from 7% to 8%.

According to Colliers, over the next six months eight buildings, comprising around 141,000 square metres of space, are expected to be delivered in the Canberra region with the biggest project being the ASIO Headquarters in the suburb of Parkes currently under construction and which will add 40,000 square metres of space to the Canberra market - representing 26% of the overall new supply anticipated to be delivered over the next twelve months.

A new office development at the St. John’s Ambulance site at 18 Canberra Avenue providing nearly 10,000 square metres of office space has been fully leased to the Department of Human Services. It is being developed by the Doma Group and due for completion in the second half of 2012.

For transactions above $20 million Melbourne had the leading tally of $629.5million, compared to $478.6million of sales recorded in the Sydney CBD.

In the Brisbane CBD, various investor types, namely institutions and foreign buyers, made approximately $408.5million worth of major purchases in the first half of 2012.

Investment-led economic activity in Perth persisted, despite a reported slowing of economic growth in China and a trouble-plagued European Union.

There had been four major transactions in the Perth CBD for the year-to-date, with a total value of $276.3million, with another sale yesterday.