Domestic buyers return to Australian CBD office market: Knight Frank

Stephen TaylorJuly 2, 20130 min read

Australian CBD office sales turnover rose by 24% over the past financial year compared with the previous 12 month period with demand being driven by unlisted wholesale funds, syndicates and AREITs.

“Emerging as a clear trend in 2013 was the return of the domestic buyer,’’ says Knight Frank’s national research director Matt Whitby.

Knight Frank found a significant increase in activity by unlisted funds and syndicates, rising from 23% of sales in 2012 to 44% of CBD deals in 2013 - a total value of around $3.08 billion in 2013.

Also, the listed AREITs’ share of the buyers' market jumped from 17% to 30% and, for the first time in many years, was clearly the biggest net purchasers of CBD office stock.


Source: Knight Frank

The Knight Frank research reveals that offshore groups have often been outbid over the past year, with domestic groups such as Mirvac, Investa, Charter Hall, DEXUS, GPT and the Motor Accident Commission of SA acquiring the lion’s share of the trophy office assets, although in most cases partnering with offshore investors.

Due to this stronger domestic demand for product, acquisitions by offshore groups have fallen from 37% to 18% over the past year.

“Due to the recent sharp fall in the Australian dollar and global share market corrections, this buyer group - although remaining active and seeking increased exposure - may remain in somewhat of a holding pattern until there are concrete signs of a stabilisation,” Whitby says.

He said following the $2.63 billion trough in 2009, there has been a consistent upward trend in CBD office sales volumes since then, reaching around $6.96 billion over the past financial year.

The Knight Frank research found a big increase in the number of CBD office sales greater than $100 million over the past few years, with the worst being in 2010-11 when only seven deals were clinched, compared to 20 over the past year.

This larger transaction activity has also been evident in non CBD/suburban markets, with four major office sales greater than $100 million over the past year - the highest in five years.

Whitby says the rise in transactions over $100 million reflected the recent trend towards local superannuation, AREITs and unlisted wholesale funds, as well as offshore groups, acquiring core, prime assets whether through joint ventures, capital partnering or directly.

‘’The return of the domestic listed groups to acquisition mode, assisted by their lower cost of capital, has allowed income accretive acquisitions. Notwithstanding the recent correction in share prices, AREITs are again raising equity to fund many of their recent purchases,” he says.

Despite the number of non-CBD/suburban office transactions sales increasing modestly, the total turnover by value is down 7% on last financial year.

“This is not surprising as purchasers have been seeking core, passive, mainly CBD assets over the past year, however, it should be noted that there was an increase in the number of large suburban office deals over the past 18 months.’’ Whitby says.

These include the Hines Global purchase of 825 Ann Street, 144 Montague Street and 100 Brookes Street in the Brisbane Fringe, and 465 Victoria Avenue in Chatswood. Groups such as Cromwell, REST, DEXUS and MGPA have also acquired large suburban assets.

“Unlisted and syndicates continue to be the biggest buyers of non CBD/suburban stock, acquiring $696.03 million and a third (33%) of all non CBD sales over the past year, while the always prominent private investors increased their exposure over the past year, climbing to 26% ($554.76 million) of sales compared with 17% last year,” Whitby says.

Knight Frank managing director of commercial sales, Paul Henley, says the increase in private investors has been driven predominately by markets such as St Kilda Road and Richmond in Melbourne, and North Sydney.

There has also been an increase in offshore buyers in non-CBD markets - from 16% to 25% - due to offshore institutional purchasers, such as Hines Global and MGPA, alongside Asian developers.

“Investment in the Melbourne non CBD/suburban market almost doubled over the past year, from $329.27 million to $635.21 million, increasing from a share of 15% to 30% of the Australian non-core total, primarily due to St Kilda Road and Richmond activity.

However, Sydney’s non-core office sector remains the standout by volumes, making up almost half (46%) of all transactions by value at almost $1 billion over the 2013 financial year,” Henley says.


Stephen Taylor

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