After a two-year pandemic-induced hiatus, overseas investors are making a fierce comeback to Australian commercial real estate markets. Their return is strongest in offices, particularly in premium buildings in Sydney and Melbourne’s CBDs.
Investors from Hong Kong are leading the charge, racking up $1.28 billion in sales during the 2022 March quarter, data from commercial agency JLL reveals. This is owing, in large part, to the Hong Kong-listed Link REIT investing $1.13 billion in the Investa Gateway Offices joint venture in February. The portfolio includes five partial interests in office buildings – four in the Sydney CBD and one in Melbourne CBD.
The United States comes in second with $490 million in first quarter sales, including Blackstone’s 25 per cent purchase of Grosvenor Place in Sydney for $462 million.
Ranking third is Taiwan with $426 million, which represents the Shayher Group’s purchase of Milton Green in Queensland. And rounding out the top five are South Korea at $312 million and Singapore at $215 million.
It’s a robust start to the year, especially when compared with the same time last year. All sectors of office, industrial and retail are up on volume levels in the March quarter when compared with last year. And office sales are leading the way. In the March quarter of 2021, office investments were at $2.74 billion, compared with $4.37 billion in the March quarter of 2022 – a 59.5 per cent jump.
“Foreign investors have also been active in the Australian commercial market in 2022,” says Fergal G. Harris, JLL’s head of capital markets Australia.
“JLL recorded a strong increase in transaction volumes, with offshore buyers accounting for 38 per cent of all transactions in Q1 2022, compared to 30 per cent recorded in Q1 2021.
“Offshore volumes rose from $1.6 billion recorded in Q1 last year to $2.8 billion in the first three months of this year. This rise comes on the back of a strong final quarter in 2021 for foreign investment, where $5.6 billion in sale transactions was recorded.”
The rebound in office investment shows growing confidence in companies successfully wooing workers out of their home offices and back to the workplace.
It’s a trend likely to continue, says Stuart McCann, CBRE’s head of international capital for Pacific and south-east Asia.
“Volumes for quarter one 2022 show offices are back into second position in terms of the most traded asset class,” he says.
“That demonstrates that concerns about the future of offices have well and truly abated and big global investors have a lot of conviction in the long term. And, they are keen to allocate more and more capital into the sector going forward, which I think is a really positive step.”
Further big sales expected across Australia’s office market signal a healthy year ahead. A 51-storey tower at 108 St Georges Terrace in Perth, developed by late West Australian businessman Alan Bond, was put on the market in May. It is expected to be sold by Canadian property firm Brookfield for $350 million.
It came just a week after Brookfield and Blackstone sold Melbourne’s Southern Cross office complex to property fund manager Charter Hall, backed by Singaporean fund GIC, for a reported $2.1 billion deal. It is believed to be Australia’s biggest office deal, eclipsing the $1.2 billion paid by the National Pension Service of Korea for a 34-storey tower at 699 Collins Street, Docklands, in Melbourne.
It signals a bright year ahead as Australia’s real estate sector claws its way back from COVID-19, says Justin Bond, Knight Frank’s national head of capital markets.
“We are seeing increased levels of investment opportunities coming to the market as borders open and confidence returns to the occupier market,” he says.
“We expect volumes to reach $20 billion in 2022, up 25 per cent from last year, but below the record level of $25 billion reached before the pandemic in 2019.”
He singled out Melbourne, Brisbane and Perth as being particularly busy in the months ahead.
“Melbourne is expected to see a very strong year, with the most stock on market of any city, at $3.4 billion, driven up by the on-market sale of the Southern Cross Towers complex and 1000 La Trobe,” Bond says.
“Following on from a robust 2021, Brisbane continues to be one of the most active Australian markets with current on-market volumes approaching $1 billion. We expect increased debt costs will drive demand for greater returns and therefore influence investor appetite for Brisbane investments.
“Perth is set to benefit from the reopening of state borders, which made it impossible for investors to visit … during much of 2021.”