Confidence boost for office space
Investors have returned to the Sydney office market with a tailwind, reflecting a turnaround in business confidence, due to the ending of uncertainty from the federal election and the lower cost of borrowings.
Sales have occurred across all sectors of the office market, from the lower grade to the limited stock that is available at the premium end.
Demand is also being seen for retail assets including big-ticket shopping centres and bulky goods. This mirrors the improvement in the residential market, where new homes and renovations lead to new sofas and whitegoods.
The deals are also being made despite the flat-to-weakening office and retail leasing market, indicating that investors are flush with cash and bricks and mortar is still attractive for capital growth.
According to the Australian head of retail investments at Jones Lang LaSalle, Simon Rooney, following $3.4 billion of part-share retail transactions in the 2012 calendar year, a further $2.3 billion of part-shares in retail malls have been completed in the 2013 year to date.
"Demand from these large offshore investors seeking passive investments in core quality Australian retail assets has been the key driver behind many of these large transactions," Mr Rooney said.
In its latest strata, Savills has recorded $2.6 billion of office transactions in the 12 months to September 2013 in the Sydney CBD.
The divisional director research for NSW at Savills, Simon Hemphill, said the sales were a rise of 139 per cent from the $1.1 billion in the previous 12 months, and up on the five-year average of $1.7 billion.
He said that during the same period, 32 properties were sold, up on the previous 12 months (15), and up on the five-year average of 22.
The main buyers were the super funds - Australian and offshore-based, which are benefiting from the inflow of superannuation.
The larger sales during the past six months, included Charter Hall Office Trust's $440 million deal for a half share of 1 Martin Place, the GE Capital portfolio, which included a half-share of 200 George and 100 Miller Street, North Sydney.
"The Fund purchaser category was the most active in the investment market in the 12 months to September 2013, purchasing 36 per cent of the stock sold [or $918 million worth of CBD transactions]," Mr Hemphill said.
"However, the Trust category had the most transactions of 10."
The sellers were also the funds and real estate investment trusts (REIT) in the 12 months to September 2013, with 41 per cent of the stock sold, equal to $1.1 billion worth of CBD Transactions.
The head of the International Capital Group in Asia Pacific, Jones Lang LaSalle, Alistair Meadows, said super funds remain cautious after the GFC, with a strong domestic bias and appetite for direct ownership, often via partnerships with fund managers offering sector-specific expertise.
"Most super funds currently remain cautious on offshore markets post-GFC.
This has resulted in a strong domestic bias and increased appetite for direct ownership, often via partnerships with fund managers offering sector-specific expertise."
AustralianSuper, the largest super fund in the country with $62 billion funds under management, is the exception, having initiated a new strategy this year to gain direct exposure to offshore real estate.