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CRE deals surge in late 2020 as investors return to the office market

Simon Fenn • 02/02/2021

The sharp rebound in domestic and foreign investment into the office market in Q4 2020 helped lift quarterly investment into Australian commercial real estate to $12bn, with the total approaching the $14.4bn recorded in the previous three quarters combined.

The latest Cushman & Wakefield Investment Marketbeat shows that while annual investment volumes were lower than previous years at $26.4bn in 2020, and well down from the record $45.5bn in 2019, investment activity surged as the year drew to a close as investors regained confidence as Australia emerged from recessionary conditions and the economy reopened.

The office market led quarterly activity with investment rising to $5.3bn, practically on par with the total of $5.4bn for the first three quarters of 2020. It was the third strongest Q4 for office in Cushman & Wakefield records, however, lower than the $7.3bn in Q4 2019. This was buoyed by the sale of 50% of Grosvenor Place to the Chinese Investment Corporation for $925m and a 25% interest in 1 Farrer Place purchased by APPF for $584m. Overall, relatively weak volume over the first three quarters of 2020 limited annual office investment to $11.1 billion, the lowest since 2012.

Moving into 2021, investment activity in the office market remains robust, with between $1bn and $2bn of deals currently in the pipeline, many of them in Sydney. This includes Brookfield just announcing the sale of its 50% interest in 60 Carrington Street, CBUS selling its stake in 1 Bligh Street, Sydney, Nuveen’s 50% interest in 101 Miller Street, North Sydney and 68 Waterloo Street, Surry Hills.

Cushman & Wakefield’s Managing Director New South Wales, Simon Fenn, said: “We have seen investment volumes across the market bounce back even further in the final quarter of 2020 with a wave of capital again targeting office assets. Australia’s handling of the pandemic and economic reopening helped bring investors back to the office market, with most of the major deal activity being in the Sydney CBD and Macquarie Park.”

“The pipeline of office transactions also continues to build with investors circling a number of premium assets. We expect these towers to attract substantial interest from domestic investors, and generate strong interest from offshore purchasers, in particular Singaporean investors that remain highly active.”

Investors continued to target industrial assets during Q4, with $2.0bn in transactions down marginally from the $2.2bn recorded in Q3 2020. This helped the industrial market post record annual investment of $6.3bn, up 21% year-on-year from $5.2bn in 2019. Investment into retail properties also climbed in Q4 2020, totalling $2.4bn compared to $1.3bn in Q3 and $745 million in Q2. This contributed to an annual total of $5.3bn, down from $6.8bn in 2019.

Investor demand for alternative CRE assets recorded its fifth strongest quarter on record at $2.3bn. This was predominantly boosted by the Salter brothers, on behalf of GIC, purchasing 11 Travelodge inns from a Mirvac and NRMA joint venture for circa $600m.

Foreign investment into the commercial real estate market also picked up during Q4, accounting for around 40% of all deals and returning to pre-pandemic levels. Overall, inbound investment in 2020 totalled $12bn compared to $15.9bn in 2019. The uplift in activity during Q4 was led by Singaporean investors, with 13 transactions totalling nearly $3.0bn.

Cushman & Wakefield’s Head of Research, Australia and New Zealand, John Sears, said: “The reopening of the Australian economy ushered in a resurgence in investment. The increase in activity can be attributed to building confidence as Australia emerged from recession and parts of the economy reopening, portfolio adjustment and very low interest rates, increasing commercial real estate’s relative attraction.

“The relative strength of our economy, and attractive returns in a lower interest rate environment should continue to support demand for Australian commercial real estate in 2021. This level of investor demand assumes we can keep COVID-19 contained and manage an effective vaccine roll-out,” Mr Sears concluded.