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Transaction volumes have slumped as valuation corrections wash through the office market and listed funds write down assets.
MSCI Real Capital Analytics head of real assets research Ben Martin-Henry says he is expecting an increase in transaction activity at the end of 2023, but a gap between buyer and seller price expectations is throwing a spanner in the works.
MSCI’s price expectations gap indicator data shows the gap in Sydney office is 30 per cent, between what buyers want to pay, and what asset owners are willing to sell for.
Martin-Henry says it’s likely that they will meet in the middle at around 15 per cent discount, well below the forecast 20 per cent mooted earlier this year.
“We’re not seeing a lot of transactions as a result of that gap,” Martin-Henry said.
“I do expect to see more transactions at the end of the year.
“Australia has been lagging other markets, it will be interesting to see the recovery profile in the next six months.”
Martin-Henry says transaction volumes are significantly down on previous years across the board.
“We’ve seen a bit more movement in the market in terms of transactions, some good, some bad,” he says.
“Transaction volumes are down 50 per cent on the five-year average. It’s the worst results since 2011. Over the last three years as a property economist it’s been a nightmare.
“It’s taking a lot of time to get deals through, between 9 and 12 months, particularly in office.
“Office values really started declining in September last year. Sydney CBD office and secondary office are the worst performing markets. Prime office is holding on reasonably well.”
MSCI Real Capital Analytics data shows the top 10 office transactions for the last financial year were predominantly in Sydney.
Canberra’s resilient office sector also featured in the top 10, with just one asset in Melbourne, and another in Perth.
Colliers’ senior executive, capital markets, Lucy Mallick says there are some emerging green shoots in the office market.
“Australia’s relatively stable economy and population growth has secured the nation’s position as a target for foreign capital targeting long-term growth prospects,” Mallick said.
“Unlike historical patterns during times of economic turbulence, office leasing and capital values are not currently aligned, and occupier demand for prime quality office spaces will support recovery of capital values.”
Address: 60 Margaret Street, Sydney
Building: 39-storey tower, 46,324sq m
Buyer: Ashe Morgan JV with Mitsubishi Estate
Seller: Mirvac and Blackstone
Price: $820 million
Price per square metre: $17,702
Cap rate: 5 per cent
Agent: Cushman & Wakefield, JLL
Address: 367 Collins Street, Melbourne
Building: 33-storey tower, 37,162sq m
Buyer: Not listed
Seller: Mirvac
Price: $400 million
Price per square metre: $10,674
Cap rate: 6.6 per cent
Agent: Cushman & Wakefield, CBRE
Address: Hunter and Pitt St, Sydney
Building: 5 buildings up to 10 storeys, 12,000sq m
Buyer: Milligan Group
Seller: -
Price: $400 million
Price per square metre: $33,334
Cap rate: -
Agent: Cushman & Wakefield
Address: 73 Miller Street, Sydney
Building: 13-storey tower, 19,114sq m
Buyer: UBS
Seller: Partners Goup JV ESR Cayman
Price: $400 million
Price per square metre: $20,928
Cap rate: 4.7 per cent
Agent: JLL, Knight Frank
Address: 383-395 Kent Street, Sydney
Building: 12-storey tower, 17,982sq m
Buyer: Charter Hall Group
Seller: Dexus
Price: $385 million
Price per square metre: $21,411
Cap rate: 5.3 per cent
Agent: McVay Real Estate, Cushman & Wakefield
Address: 23 National Circuit, Canberra
Building: 6-storey building, 32,999sq m
Buyer: Charter Hall Group
Seller: Doma Group JV Goodwin & Kenyon
Price: $370 million
Price per square metre: $11,212
Cap rate: 4.2 per cent
Agent: Colliers International
Address: Geoscience Complex, Canberra
Building: 3 buildings, 32,658sq m
Buyer: Charter Hall Long Wale REIT, Charter Hall Infrastructure REIT Charter Hall Group JV
Seller: Real IS AG
Price: $363.5 million
Price per square metre: $11,130
Cap rate: 7.4 per cent
Agent: JLL, Colliers International
Address: 83-95 Clarence Street, Sydney
Building: 19-storey tower
Buyer: NSW government
Seller: State Super
Price: $362 million
Price per square metre: $19,053
Cap rate: -
Agent: -
Address: 108 St Georges Terrace, Perth
Building: 52-storey tower, 39,358sq m
Buyer: Lendlease JV Realside
Seller: Brookfield AM
Price: $339.8 million
Price per square metre: $8632
Cap rate: 7.4 per cent
Agent: JLL, CBRE
Address: 21 Genge Street, Canberra
Building: Two 10-storey buildings
Buyer: Charter Hall Group
Seller: Real IS AG
Price: $290 million
Price per square metre: $6744
Cap rate: 7.3 per cent
Agent: Knight Frank, Cushman & Wakefield
* Multiple asset office portfolio transactions were also recorded during this period.
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