This article is from the Australian Property Journal archive
OFFICE capital values are forecast to drop an average of 10% from peak to trough, before the market continues its recovery in 2024.
According to Colliers, the continued preference for quality office spaces will see office capital values take a smaller dip than the 25% seen during the GFC.
This comes after 2022 saw 60% of all office leasing deals see tenants commit to prime grade office spaces, pushing national face rental growth up 5.3% across all grades and Premium face rents seeing a record increase of 6.2% across all grades.
“Unlike historical patterns during times of economic turbulence, office leasing and capital values are not currently aligned,” said Adam Woodward, head of office capital markets at Colliers.
Average capital values for Premium and A-grade assets in the CBDs are expected to decline by about 5% and 12% respectively, with B-grade assets forecast to fall by as much as 20% by March of 2024.
“We anticipate capital values across all grades will commence recovery post March 2024, however, Prime values will remain significantly stronger,” added Woodward.
Meanwhile occupier demand and rents will leave prime office yields in CBDs in a better position, after dropping 30 basis points to a 5.28% average in 2022, compared to secondary office asset yields which fell by 50 to 75 basis points to a 6.22% average.
“There remains a substantial pool of capital, and with interest rates expected to peak mid‑2023, we predict a faster recovery rate than the GFC, when it took around five years for capital values across all office grades to rebound,” said Joanne Henderson, national director of research at Colliers.
Offshore capital is expected to continue to come from the same sources, with Singapore accounting for 51% or $2.3 billion in offshore capital and Hong Kong accounting for 27% or $1.2 billion.
While 63% of respondents to the Colliers Global Investor Survey said the office sector remains their top pick for the APAC region.
Though the ACT also saw significant sales activity over the year, surpassing $1.45 billion and overtaking its previous record of $1.42 billion the year prior.
With investors drawn to Canberra’s long WALE assets, with the average WALE for properties transacted in the nation’s capital climbing from 5.8-years in 2021 to 8.1-years in 2022.
“Canberra also experienced a flurry of listing activity in 2022 Q4 as institutional investors sought to rationalise non-core assets and future-proof national funds,” said Matthew Winter, national director of capital markets and investment services at Colliers.
However, in 2022 it was NSW that saw the greatest share of investment, at 46% of sale activity. With 60% of 750 global investors naming the Sydney CBD office market as a top preference for 2023.
“In the investment markets, Australia, and the Sydney CBD, remain attractive on a global basis due to the stability of local markets and level of returns available when compared against other major international markets,” concluded Woodward.
