Prices soar as offshore investment dominates (Is Australia becoming too expensive?)
GUEST OBSERVER
Australian CBD office space is just one percent of global office floorspace, however for such a small market it is remarkably popular with investors.
In our 2015 Global Investor Outlook survey, Sydney and Melbourne were ranked as the second and third most popular destinations in which global investors wanted to target.
London, which has an office market more than three times larger than Sydney, ranked first.
Offshore investors now own 17 percent of Australian office stock, around twice as much as they did five years ago. Investment levels continue to rise. In 2015, offshore investors accounted for 67 percent of total direct investment in CBD office buildings. If indirect investment is included, the proportion is a lot higher.
Australia's strong economy, high transparency and low sovereign risk continue to play a key role in driving investment decisions. However, yield compression is continuing to occur and some investors are beginning to see Australia as too expensive. We consider this is unlikely to lead to a significant reduction in offshore investment in CBD office investment in 2016.
The key challenge for offshore investors is that although Australia is a particularly popular target, the small size of the market makes it difficult for them to access stock.
Nerida Conisbee is national director of research for Colliers International and can be contacted here.