Bad day at the office for rents, but good for sales
Investors have poured in close to $3.64 billion across medium to large towers, led by private and super funds. High-grade office towers with Green Star ratings and minimal required upgrades were the most popular.
The head of South Asia research at DTZ-UGL, Dominic Brown, said the capital inflow was a solid year-on-year increase over last year's first-quarter figure of $2.59 billion.
Private vehicles were the most active purchasers, with net investments of $788 million. Mr Brown said real estate investment trusts sold $782 million of commercial real estate, driven by the sale of several office development projects under construction.
The office sector returned to being the most favoured asset class for investors, accounting for almost $2 billion of investment in the first quarter. The deals included Mirvac's purchase of seven GE Capital office assets in Sydney, Melbourne and Perth, valued at $584 million, including 210 George Street, Sydney.
"This is the strongest quarter figure since the global financial crisis," Mr Brown said.
"After a prolonged period of net divesting, A-REITs finally returned to the black in the first quarter with net buying activity."
But this is set against a mixed outlook for the office market. In Sydney's CBD, there is limited tenant demand, which has caused rents to remain on hold, even though incentives have increased in an effort to boost activity. "With conditions forecast to remain weak over 2013 and a stronger than average supply line, rents are expected to remain largely flat for the year," Mr Brown said.
The latest CBRE global office report shows property values continued to improve, rising 0.9 per cent during the first quarter, while global office rents were stable.
The global chief economist at CBRE, Raymond Torto, said the Asia-Pacific region's office rent index had little variation over the past six quarters.
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The first quarter was mixed: sales activity was strong while rentals were largely flat. Investors put close to $3.64 billion into medium-to-large office towers, but tenant demand and rents, particularly in Sydney's CBD, remained weak.
Investors committed about $3.64 billion across medium to large office towers in Q1 2013. The office sector was the most favoured asset class, accounting for almost $2 billion of investment in that quarter.
Private vehicles were the most active purchasers with net investments of $788 million. Real estate investment trusts sold about $782 million of commercial real estate (largely office development projects under construction), and A-REITs returned to net buying activity in the quarter after a prolonged period of divesting.
High-grade office towers with Green Star ratings and minimal required upgrades were the most popular with investors, reflecting demand for modern, low-upgrade assets.
A headline deal was Mirvac's purchase of seven GE Capital office assets in Sydney, Melbourne and Perth valued at $584 million; that portfolio included 210 George Street in Sydney.
Limited tenant demand in Sydney's CBD has kept rents on hold even as landlords increased incentives to boost activity. With a stronger-than-average supply pipeline and conditions expected to stay weak through 2013, rents were forecast to remain largely flat for the year.
CBRE reported that property values rose 0.9% during the first quarter, while global office rents were stable. CBRE's global chief economist also noted the Asia‑Pacific office rent index showed little variation over the past six quarters.
'Returned to the black' means A-REITs moved back into net buying after a period of net divestment. In other words, on balance they were purchasers of office assets in the quarter rather than sellers.
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