This article is from the Australian Property Journal archive
JUST over one handful of prime office transactions were recorded since October last year totalling $720 million and no properties changed hands in Sydney, Brisbane and Perth, according to a CB Richard Ellis.
CBRE executive director research and consulting Kevin Stanley said the six deals provided the first real evidence of where prime CBD investment yields were tracking and key pricing trends in the office sector.
Of the $720 million in sales, 48% have been in Canberra, where investors have been attracted by new buildings, long leases and the security of Government tenants. Melbourne represented 41% of the sales as genuine vendors emerged, while just 11% of the sales by volume were in Adelaide (just a single sale of the Grenfell Centre).
“Significantly, there have no sales in Sydney, Brisbane and Perth since October which might be considered “prime” in an institutional investment context,” Stanley said.
CBRE regional director of institutional investment properties Robert Sewell said the investment focus on Canberra was a factor of the long lease terms of 10 to 15 years which were available in that market on government-leased assets.
“The majority of the market activity in Canberra has been driven by European investors who are seeking blue chip, long term lease covenants,” he added.
The CBRE analysis also shows the movement in yields has been over and above existing analyst estimates.
Stanley said indicative yield is now about 8.40%, having softened from about 8.20% in October last year.
This softening has been heavily influenced by the sale this month of 15 William St in Melbourne at a reported yield of 8.75%.
“The June quarter 2009 Australian weighted average Prime CBD office yield is close to 8.0%. This suggests the sales-driven yield is about 40 basis points “above and ahead” of the analysts call, or the implied yield which has been adopted given the lack of sales data,” Stanley said.
But he added this gap would inevitably close.
“So far in this cycle, the adjustments made to implied yield have removed, on paper, 20% from prime office capital values. This extra 40 basis point softening to meet the market could eventually take another 10% from capital values, on average, across the Australian prime office sector, as valuations flow through the market,” he added.
The six investment sales plotted by CBRE are the Edmund Barton Centre, Industry House and 62 Northbourne Avenue, all in Canberra; 15 William St and 1 Spring St in Melbourne; and the Grenfell Centre in Adelaide. All were sold to either European or private investors.
Sewell said the transactions highlighted a clear shift in the market following a stagnant 2008, during which investment sales dipped by 60%. During that period an estimated AU$30 billion of assets was theoretically available for purchase, however most vendors remained reluctant to deal at discounts to book value.
“It’s our firm belief 2009 will be characterised by a significant reduction in the number of assets being offered to the market, particularly prime assets, due to the recent capital raisings which have been undertaken by many of the larger LPTs.
“Upcoming market opportunities are likely to be driven by several factors. Sales by distressed vendors are likely to occur as these owners were compelled to reduce debt ahead of loan expiries. Additionally, a select number of wholesale funds were expected to sell assets to meet redemptions or to fund capex programs,”
“At the top end of the market, for assets priced over $100 million, the predominant target would continue to be offshore investors,” he added.
Australian Property Journal
