Investment in the Sydney's CBD - Australia's largest commercial office market - reached an all time record of $4.29 billion in 2012, according to
Jones Lang LaSalle's Sydney CBD Investment Market Review.
The figure is the highest level on record since Jones Lang LaSalle began recording in 1988 – and significantly above the $2.0 billion of sales in 2011.
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This number was boosted by the $2.0 billion of capital commitment to International Towers Sydney at Barangaroo South as well as the deals recorded as part of the de-listing of the Sydney proportion of the CQO. Outside of these transactions, interest in Sydney was from offshore groups and the return of Super Funds and A-REITs, according to the report.
Jones Lang LaSalle’s Paul Noonan, Head of Sales and Investments, NSW said investors seeking product in the Sydney CBD will continue to have limited opportunity to acquire assets.
“While off-market approaches will continue, the major sources of on-market campaigns in the Sydney CBD in 2013 will come from sources including the expiration of fixed funds, offshore groups who engaged in opportunistic buying in 2008-9 that can hit their return hurdles, and the continuation of mergers and acquisitions resulting in new owners divesting out of “non-core” product,” said Mr Noonan.
Simon Storry, Jones Lang LaSalle’s Head of International Investments, said, “Australia’s market transparency, stable GDP growth and high-yielding property market have been a major draw card for cross-border capital into Australia over the last few years.
“Offshore sovereign wealth funds, international investment trusts and global pension funds are all active within the commercial property sector,” said Mr Storry.
According to the report, since 2010, Sydney CBD has accounted for 47% of all offshore investment into Australia, totalling $4.1 billion.
“Previous perceived barriers to offshore investment, such as the high Australian dollar and the 2012 tax increase on returns paid to overseas investors of managed investment trusts, have not stifled investment inflows. In fact, offshore investment has been building over the last three years,” said Mr Storry.
Since 2010, offshore investment volumes in Sydney have averaged AUD 1.36 billion annually, compared to the AUD 48.6 million averaged through 2008-9 when cross-border investors were focused more on the Canberra and Melbourne CBD markets.
“The appetite for product in Sydney as Australia’s most desired office location is intensified for new buildings. Most of the under construction development opportunities or those seeking pre-commission are already tied up in capital partnerships prior to completion.”
According to Mr Storry, buyers will move faster in the Sydney CBD market this year.
“On-market campaigns in 2012 were characterised with longer times to reach an agreement on price. By year end 2012 we experienced buyers displaying a greater sense of urgency in campaigns, particularly on prime opportunities.
“We expect this to be a continuing trend in 2013,” said Mr Storry.
Mr Noonan said that Sydney remains the core investment market for A-REITs.
“Approximately 58% of the acquisitions made by A-REITs in 2012 were in Sydney – the bulk of which were in the Sydney CBD. In 2012, A-REITs acquired AUD 1.2 billion worth of commercial property – the first time the acquisition has surpassed AUD 1 billion since 2007.
“In 2013, A-REITs will be active participants in campaigns, providing greater depth to the investment market than was witnessed between 2008 and 2012. Furthermore, A-REITs will be vendors as they recycle portfolios and dispose of non-core assets,” concluded Mr Noonan.