This article is from the Australian Property Journal archive
INVESTMENT volumes across Australia’s CBD office markets are up 21% over 2024, moving in line with improved sentiments across the beleaguered sector.
According to the latest research from Knight Frank, transaction volumes were at $1.5 billion in Q3, with the year to the end of September at $3.8 billion.
This comes after Q2 recorded $1.8 billion and Q1 saw $477 million office assets sold, with Knight Frank forecasting the year’s transaction volumes will surpass 2023’s $4.6 billion.
“We expect to see a further pick up in deal momentum in the coming quarters, with investors now feeling more confident to act,” said Ben Burston, chief economist at Knight Frank.
“This improvement in sentiment is due to several factors, including a change in the interest rate outlook and the commencement of a rate cutting cycle from multiple central banks around the world. Rates have now been cut across most major economies and real estate markets have responded positively, with the listed REIT sector rallying since July,” he added.
The revival comes after the US Federal Reserve cut interest rates by 50 basis points to range between 4.75-5%, whilst the chances of a November interest rate cut has jumped in the United Kingdom after inflation data shows the figure has fallen to 1.7%. The European Central Bank is also eyeing further reductions.
Investment volumes for Q3 were highest in Sydney, at $2.2 billion, followed by Melbourne at $698 million and Brisbane at $580 million.
Offshore investors accounted for 47% of transactions in the year to the end of September.
Just this month a JV between Singapore-listed companies UOL Group and Singapore Land Group (SingLand) finalised the purchase Brookfield’s half-stake in Sydney office tower 388 George Street at $460 million. That transaction came hot on the heels of Hong Kong toy billionaire Francis Choi’s $196.4 million sale of 1 Castlereagh Street in the heart of Sydney’s CBD.
Other major transactions including Mitsui Fudosan’s acquisition of a circa 66% stake in 55 Pitt Street, Sydney for $1.3 billion, Keppel REIT buying a 50% stake in 255 George Street, Sydney for $363.8 million and PAG purchasing 367 Collins Street, Melbourne for $301 million. Mirvac divested the 40 Miller Street, North Sydney office building to Barings for $140 million, and 367 Collins Street in Melbourne for $345 million, with both deals struck at a 20% discount to peak book values.
Meanwhile, Cbus Property is spending $310 million to acquire a 50% share of 5 Martin Place in the Sydney CBD, as reported by Australian Property Journal. That tower had previously shown a valuation of $405 million two years ago.
“After only a handful of deals over the past two years, a spate of deals in Sydney, Brisbane and Melbourne in recent months have gone a long way to establishing a new baseline for pricing and unlocking further activity,” said Ben Schubert, national head of institutional sales and capital advisory at Knight Frank.
“In addition, prime yields were unchanged over Q3 in a sign that values are now stabilising.”
Leasing markets saw divergent results over the period, with net face rents in Brisbane up by 4.2% in Q3 for a 11.4% annual increase. While other markets remained largely stable.
“Tenants have become more cautious in recent months, reflecting sluggish business sentiment and high fit out costs associated with moving, so a higher proportion are opting to stay put,” added Burston.
