This article is from the Australian Property Journal archive
CAPITAL from Singapore and China is returning to Perth’s office market, as upticks in net absorption and employment take it into a recovery phase.
According to Ray White Commercial’s Between the Lines report, office sales grew by 15.89% to $883.99 million over 2017/18, driven by a number of high value transactions.
“Interest has returned from offshore investors, notably from Singapore and China pursuing larger assets with high occupancy level despite the overall poor performance of the CBD office market,” Ray White Commercial head of research Vanessa Rader said.
Sales volumes have been relatively stagnant over the past five years, averaging $850 million per annum after a clear peak in 2012/2013, driven by rebounding economic conditions which elevated rental rates and lower vacancies, and saw more than $2.3 billion in transactions.
“Improving employment demand and recent increases in net absorption of office stock highlights the start of a recovery phase for Western Australia, which is seeing interest return to this sector of the market,” Rader said.
JLL research released last week showed Perth’s vacancy rate has continued its gradual tightening, from 22.7% at the end the June quarter last year to 20.9% at the end of June this year. PCA data showed CBD vacancies at 19.8% at the beginning of this year, and West Perth at 16.7%.
The most recent deals have included WA-based Acure Asset Management’s $130 million acquisition of Blackrock’s A-grade Optima Centre in the Herdsmen Business Park. Fully-leased, the dual-building complex has 16,116 sqm of office space and returns around $9.03 per annum net, with the WA government occupying around 83% by area on a recently renewed 15-year lease.
That quickly followed Investa Office Fund’s divestment of 836 Wellington Street in West Perth to Growthpoint Properties Australia for circa $103 million. The six-level 11,973 sqm building at 133 Hasler Street is leased to the federal government’s Department of Immigration and Border Protections and has a weighted average lease expiry of. 8.67%
Transactions of $100 million-plus over the past year have also seen GDI’s acquisition of Westralia Square at 141 St Georges Terrace, for $216.25 million, Primewest’s $175 million purchase of 1 William Street at on behalf of Singapore sovereign fund GIC, and Elanor Investors Group picking up Workzone West at 202 Pier Street from Charter Hall Direct WorkZone Trust for $125.22 million.
Opportunistic investors, including syndicates and funds, continue to seek value from the office markets.
Industrial sales activity overall fell slightly to just below $800 million, mostly due to volumes being down in the larger size ranges, with just seven transactions coming in over more than $20 million. Vacancies are slowly reducing but remain high, and capital values and yields remain steady.
The sub-$5million industrial value range accounted for almost $590million. Rader said the smaller transactions to be turning over at a high rate with interest from both the private investor, for tenanted assets, and owner occupiers seeking their own premises, often via their SMSF, during this time of low interest rates.
Retail property investment volumes grew from a low base in 2016/17 across WA. It came in at $1.1billion, albeit dominated by the purchase of a 50% stake in Rockingham shopping centre for approximately $300 million by AMP Capital, and the sale of Ikea Perth in Innaloo to Listed Trust GDI Property Group for $143.5 million.
“The retail market is one which has received high levels of bad press; with Amazon coming to Australia their greater focus on the future and longevity of shopping centres and retail premises and the rising appeal of the industrial distribution market.”
Smaller sub-$5 million transactions accounted for more than $230 million of all sales, reflecting ongoing demand from smaller investors who are seeking affordable investment options and attractive yields on offer, averaging 6.80% across the total market.
Hotel and leisure market investment slipped by 6.78% to $177.66 million, with the bulk of investment into larger accommodation properties coming from offshore buyers. This included the recently renovated Holiday Inn City Centre being picked up by Singaporean group Legend Land, for $65 million at around $360,000 per room.
Rader said the Perth CBD will see a number of new and refurbished hotels added to the market after a number of years of limited supply.
Occupancy levels have been over 70% for much of the 2018, although daily room rates have tightened a little to $168 per night for the year to May, well below the peak period of 2014, which saw occupancy levels at around 90% and room rates more than $200 per night.
Ray White Commercial’s data said development site activity has “substantially waned” across the WA market. While the $216.21 million that changed hands over 2017/18 was up 18.94% on the previous year, it has tumbled dramatically from the near-$800 million high of 2014/2015.
Rader said this was driven by a reduction in residential values and diminishing population growth. Offshore developers have largely retreated from the market – Singaporean and Malaysian developers have taken their share of transactions to less than 15%, after accounting for more than 30% during 2014/15.
Local high net-worth opportunistic buyers are the major purchaser type given the uncertainty brought to market by the tightened lending environment.
The budding medical and childcare sector of the market posted $86.94 million over the 2017/2018 financial year, a slip of 1.97% on the previous, although further the 2014/2015 peak of more than $130 million changed hands.
“Catering for the both the aging and growing natural population increase, occupancy and custom levels are high for quality facilities keeping rents at an elevated rate compared to other asset classes. Over the past 12 months however, demand for these assets, most notably childcare, have reduced with funding and supply being a contributing factor.”
Australian Property Journal
