A growing number of investors are looking beyond Australia’s CBDs to key metropolitan markets as they broaden their search for stock and yields, according to new Colliers International research.
Colliers International’s H1 Metropolitan Office Research & Forecast Report found Australia’s suburban office markets saw a net influx of capital from offshore investors of $1.22billion in 2013.
“While this figure was heavily impacted by the record purchase of 177 Pacific Highway, North Sydney by Suntec REIT for a $413.19million, it does indicate that offshore investors are now willing to look beyond the CBD markets for more strategic opportunities,” John Marasco, Colliers International Managing Director of Capital Markets & Investment Services, said.
“In 2014, we should see a continuation of this trend, as players in the hotly contested CBD markets search for more generous yields further afield.”
Sales volumes of office buildings in the CBD markets were particularly high in 2013 – more than $8billion worth of stock was sold, the highest figure since 2007.
“The strong sales environment in 2013 in the CBD markets was influenced by a large number of buyers looking for stock, which will spill over into metropolitan markets in 2014,” Mr Marasco said.
“Local institutions who are recapitalised, offshore purchasers – particularly super funds and sovereign wealth funds with new allocations to Australia’s relatively safe CBD office markets – developers looking for residential or hotel conversion opportunities, and syndicates and smaller unlisted retail funds are all actively trying to source office stock in Australia.
“The opportunity for metropolitan office markets in 2014 is to absorb some of this demand for stock that can’t be met by Australia’s five major CBD markets alone.”
Not all metropolitan markets will be able to absorb this demand however, as many have a distinct lack of institutional-grade stock.
“In Sydney, the North Sydney market has already proven itself a drawcard for both local institutional and offshore demand, while in Brisbane the Urban Renewal precinct is and will remain the preferred metro location for institutional investors,” Mr Marasco said.
“In Melbourne, St Kilda Road is one of the few metro markets with stock of sufficient scale and quality to attract CBD-type capital. It is expected unlisted retail funds will be one of the first groups with mandates to acquire property in this precinct.”
Colliers International research found while private buyers typically made up a large portion of metropolitan office purchasers in most markets, they were actually net sellers in all markets except Perth.
“Even in Melbourne, where almost a quarter of all office sales were to private investors, this group were actually net sellers, by dollar value, across the whole market,” Anneke Thompson, Colliers International Associate Director of Research, said.
“In Melbourne, occupiers or developers were net buyers, as there was a strong trend, particularly in the Inner East precinct, of local businesses taking advantage of low interest rates and purchasing their own premises.”
Institutions were net buyers only in Brisbane and Adelaide. In Brisbane, some large purchases in Hamilton and the Urban Renewal precinct, by the likes of 360 Capital and GPT Group – which seeded its metropolitan office fund with the $110million purchase of the Optus Centre Brisbane in November – resulted in institutions gaining more of a foothold in that market.
In all markets, however, syndicates and offshore group were net buyers of metro office stock in 2013.
“Some of the offshore groups may be looking to develop sites for residential use in the future, particularly those sites in inner ring suburbs,” Ms Thompson said. “Syndicates are attracted to metro markets as it offers them the type of scale they are after – for example, $20million to $60million assets – as well as more attractive yields than can be acquired in CBD markets.”