New Report Confirms Australia’s Office Investment Market is Charging Ahead
JLL’s latest Annual Office Investment Report reveals that transaction volumes for the Australian office investment market exceeded the $15 billion mark in 2014 and 2015, showing the depth of liquidity in the sector and demand for core assets.
The report reveals that new sources of capital will enter Australia in 2016, although transaction volumes are predicted to be lower with activity centring around the $50-200 million lot size. In an announcement released by JLL, the company’s Head of Investments -- Australia Rob Sewell says, “Office investment markets were very active in 2014 and 2015 with high levels of liquidity, multiple capital sources competing for single assets along with multi-asset offerings. New pricing benchmarks were achieved in Sydney and Melbourne with prime office yields nudging down to five per cent. Brisbane saw great activity in 2015 and we expect this to continue in 2016.
“In 2016, investors will concentrate on acquiring assets with strong income growth potential. “ According to JLL’s Head of Strategic Research – Australia, Andrew Ballantyne, “Vacancy movements are more closely linked to fluctuations in supply than to demand and limited development activity from 2017 provides an environment where vacancy will tighten and effective rents will increase.”
JLL’s projection is that area-weighted CBD prime gross effective rents will increase by an average of 4.8 per cent per annum from 2016 to 2019.
Adds Ballantyne, “The effective rent recovery in Sydney and Melbourne provides an additional ingredient to the investment thesis and some core investors will consider opportunities that provide some leasing market exposure to the 2017 to 2018 period.
“Furthermore, core+ and value add investors will dedicate greater resources to exploring counter-cyclical opportunities in markets where the leasing fundamentals are more challenging."
“The yield spreads will be compelling for investors that can navigate idiosyncratic risk factors. As an illustration of the opportunity, the spread between average secondary yields in Brisbane and Sydney is 210 basis points – 115 basis points wider than the 10-year average of 95 basis points.”