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Australian office investment set to surge in 2022

Investment in the Australian office market is set to surge this year, according to the latest research from valuer Knight Frank.

Based on the current level of office transactions, which sits at $4.9 billion with a further $6.9 billion worth of stock currently on the market, Knight Frank said office investment volumes in 2022 were likely to easily exceed the 2021 total of $16.1 billion.

Knight Frank National Head of Capital Markets Justin Bond said office investment across Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra remains strong.

“We are seeing increased levels of investment opportunities coming to the market as borders open and confidence returns to the occupier market,” Mr Bond said. 

“We expect volumes to reach $20 billion in 2022, up 25 per cent from last year, but below the record level of $25 billion reached before the pandemic in 2019.”

Mr Bond said across Melbourne total volumes could approach the 2019 record of $5.2 billion. 

“Melbourne is expected to see a very strong year, with the most stock on market of any city, at $3.4 billion, driven up by the on-market sale of the Southern Cross Towers complex and 1000 La Trobe,” he said.

Mr Bond said Brisbane continues to be one of the most active Australian markets with current on market volumes approaching $1 billion. 

“We expect increased debt costs will drive demand for greater returns and therefore influence investor appetite for Brisbane investments,” he said.

With Western Australia reopening its borders, Perth is seeing renewed interest from inventors, according to Mr Bond.

“Perth is set to benefit from the reopening of state borders which made it impossible for investors to visit and inspect assets during much of 2021,” he said.

“With just over $400 million of stock on the market, the city is also benefitting from a strong economy in Western Australia with the office market supported by rising demand for space from the mining sector.”

Mr Bond said he expects increased foreign investment in Australia now that the international borders have opened.

“There is sustained demand from the US, in particular North America, and Singaporean buyers, and rising appetite from major German and Korean institutions,” he said.

“This reflects confidence in the near-term outlook for occupier market recovery in Australia and the longer-term prospects for Australian cities supported by a robust labour market and a large pipeline of infrastructure investment to be rolled out over the next decade. 

“Australia offers tremendous fundamentals for foreign investors – political stability, low unemployment, strong corporate governance, market liquidity and favourable returns comparative to other global destinations. 

“The uncertainty of the situation in Europe reinforces the desire of many European investors to increase allocations to foreign real estate investments.”

Mr Bond said historically Sydney and Melbourne remained the most favoured markets for overseas investors, while domestic institutions have been scaling up their allocations to Brisbane, Adelaide and Canberra due to their relative stability during the pandemic and strong return outlook.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.