Office ‘Megadeals’ See Record Year

Office tower transaction volumes smashed the $20 billion mark last year, with more office towers expected to change hands in 2020.

The Australian office sector established a new high for volumes in 2019, as sales reached $22.5 billion, surpassing transaction volumes of 2018’s $19.87 billion, according to JLL’s Australian Office Investment Outlook report.

Fourteen “megadeals”, defined as those in excess of $400 million, were recorded last year. This number is up from eight in 2018, and three in 2017.

JLL notes that Melbourne's CBD, with prime grade vacancy at an 11 year low of 1.8 per cent, is one of the tightest office markets in the world.

Among the “megadeals”, includes office giant Dexus' acquisition of the 80 Collins Street complex in Melbourne for $1.46 billion with plans for a new premium grade office tower and hotel.

AEW Capital purchased Melbourne’s 31 Queen Street for $200 million on a sub-5 per cent yield.

The report notes that Sydney’s office development pipeline has strong levels of pre-commitment and low vacancy.

JLL says offshore capital was active across Sydney’s North Shore with Hong Kong-based investor Francis Choi's Early Light International Holdings snapping up a 50 per cent stake in 100 Miller Street for $300 million.

US fund manager Starwood Capital partnered with Arrow Capital to purchase The Zenith, at 821-841 Pacific Highway, in Chatswood for $438.2 million in June last year.

JLL head of research Andrew Ballantyne describes vacancy rates in Sydney and Melbourne’s office markets as “below equilibrium”.

“However, we expect a moderation of rental growth in the Sydney CBD and Melbourne CBD as new supply comes online and backfill space becomes available,” Ballantyne said.

“Brisbane, Perth, Adelaide and Canberra are in the early upturn phase of the cycle with vacancy tightening, from elevated levels, and a reduction in leasing incentives driving rental growth.”

While Queensland’s economy is in recovery with increased infrastructure spending and stronger population growth, Brisbane’s largest purchase of 2019, Cromwell's acquisition of 400 George Street for $524.75 million, bolstered office transaction volumes to $2.01 billion in Brisbane CBD.

Offshore investors

While offshore investors remained active, last year was the first time since 2006 that the cohort sold more assets, $11.19 billion, than they acquired, $9.21 billion, according to JLL.

Offshore investors made up 41.4 per cent, or $9.18 billion, of transactions by value in 2019.

JLL notes the most active offshore buyers were from Singapore (14.4 per cent of total volume), the US (11.7 per cent of total volume) and Hong Kong (9.1 per cent of total volume) in 2019.