Market Reset Lures Investment Back to Sydney

While international capital is eyeing the Harbour City favourably, an Asian neighbour is outpacing the Aussie, according to the Urban Land Institute’s latest report. 

The Emerging Trends in Real Estate Asia Pacific report is pointing to the office sector bottoming out as investor sentiment improves. 

According to the report, data from MSCI is indicating a “sizeable deal pipeline” for the last quarter of 2024. 

The Australian market is attracting attention as local institutional funds lower asking prices, causing a market reset of up to 25 per cent in book valuations. 

ULI Asia Pacific chief executive Alan Beebe said the report also indicated a number of Asia Pacific markets were “on the cusp of revival”.

“We are entering a period where both buyers and sellers should be motivated to make strategic concessions, whether they are managing inactive funds with mounting dry powder, or investment managers with time-limited funds under pressure to liquidate assets so that they can return capital to their own investors,” Beebe said.

“This market recalibration can only materialise once we see a return to more normalised trading conditions and improved liquidity.”

Global funds that had been absent from core markets for the last three years are now back in the market looking for deals, the report said. 

While Sydney is emerging as a key office market, Melbourne continues to languish with high vacancy rates and Japanese cities Tokyo and Osaka have tipped out the Harbour City as the best investment prospects for the region.

The start of a new cycle of declining interest rates, together with increased pressure from banks to reset asset values, means buyers and sellers are showing greater drive to compromise on pricing.

▲ The Wardle studio design for a Time & Place office project (Bourke and Bowden) incorporates a central landscaped courtyard.

Investors are also increasingly moving into alternative asset classes including data centres and the living sector to achieve targeted returns, according to the report. 

PsC Asia Pacific real estate leader Stuart Porter said global investors had increasingly pivoted investment allocations towards Japan, Australia and Singappore.

But emerging markets such as India were also appealing to investors. 

“This has been complemented by expanding intra-Asia investments, such as by Japanese developers into Australia,” Porter said. 

“The report also provides a level of sagacity regarding future interest rates as well as bid-offer spreads in the commercial market, which provides some ballast to values as well as deal flow over-exuberance.”