Australian CRE investment set to climb with $8bn in live office deals

John Sears • 27/03/2019

The Australian office market is set to drive national commercial real estate investment volumes higher in 2019, with nearly $8bn in office asset sales currently on the market across the country. Once transacted, this pipeline will add to the $3.2 billion in office deals already completed in Q1 2019 – 66% of the market-wide quarterly investment total of $5.46 billion.

A number of major assets are contributing to the $7.6 billion in potential deals, including 80 Collins Street in Melbourne, the Oxford Properties portfolios, 118 Mount Street, North Sydney and 21 Harris Street, Pyrmont.

According to Cushman & Wakefield research, overall investment in Q1 is already tracking above the 5-year average but has yet to reach the Q1 2018 level of $6.3 billion in transactions. 2018 was a record year for commercial property investment in Australia, with $41.8 billion invested.

During the first quarter, both the New South Wales and Victorian office markets contributed significantly to overall market liquidity, with major deals including 50% of Sydney’s MLC Centre transacting for $800 million, the Propertylink portfolio for $800m, 2 South Bank Boulevard in Melbourne for $326m and the sale of 595 Collins Street for $314 million.

John Sears, Head of Research, Cushman & Wakefield, commented: “2018 was a record year for commercial real estate investment in Australia and the appetite among investors remains strong as we move into 2019. With a significantly elevated number of major office deals currently in play, the stage is set for a robust first half.”

“There are a range of factors currently supporting the relative attractiveness of Australian commercial property assets, including the 12% decline in the AUD since January 2018, and the bond yield recently slipping to 1.75%,” Mr Sears added.

Steven Kearney, Capital Markets, Cushman & Wakefield, commented: “Current discussions with domestic and offshore investors assessing office assets and national portfolios of significant scale has shown that demand remains strong in 2019.”

Cushman & Wakefield research also shows that foreign investors again made up a significant proportion of transaction volume in Q1, accounting for $2.65 billion (48%) of total volume, following on from the 56% recorded in Q4 2018.

Chinese and Hong Kong based buyers purchased $1.4bn in assets during the quarter, confirming the finding identified within Cushman & Wakefield’s 2019 China Outbound Investor Intention Survey that, after Hong Kong and the US, Australia is the most attractive destination for mainland Chinese overseas real estate investment. The US and Europe were other top sources of inbound capital in Q1.

Rick Butler, International Director Capital Markets, Cushman & Wakefield, added: “Foreign investors remain very interested and with hedging costs reducing with the decline in the Australian dollar, there should be a strong level of deals to offshore groups.”

Considering overall investment by state, New South Wales was the top destination for capital in Q1 2019 with 41% of all transactions totalling $2.2 billion. This was followed by Victoria with $1.2 billion or 21% of total volume. Australia-wide portfolio transactions, which ranked first in total volume in Q4 2018, recorded another significant quarter with $1.1 billion.

By sector, the office market remained dominant in with $3.2 billion (58%) of total volume, following the near record volume of $8.6 billion (52%) in Q4 2018. Industrial transaction volume of $1.2 billion was the highest Q1 volume since 2011. Retail volume was subdued with just 8% of volume, however, transaction activity volumes are expected to increase in the year ahead.