Metro office precincts are in investors' spotlight
Investment activity in Sydney’s metropolitan office markets has broached $1 billion as cash is re-directed away from quiet City precincts where skyscrapers await the return of workers.
Sydney’s north shore has been one of the most active as investors look to buy assets close to residential areas, allowing staff the option to work closer to their homes and avoid long trips in public transport amid concerns of any new coronavirus outbreak.
Dexus raised $273 million from the sale of the office tower at 60 Miller Street, North Sydney, while American fund Nuveen is testing the water with the sale of a half share in 101 Miller Street and the Greenwood Plaza.
In its latest report, JLL has recorded 17 Sydney metropolitan office asset sales (valued at more than $5 million each) with investors gravitating to long-leased assets.
Nationally, there have been 47 commercial real estate assets sold in non-CBD office markets since the start of 2020, according to JLL Research.
JLL’s head of capital markets (NSW) Luke Billiau said the level of investor interest in metropolitan office markets was increasing.
“We are seeing capital sources that have traditionally only invested in CBD office markets explore the suburban office market investment thesis,” Mr Billiau said.
“The unprecedented public transport infrastructure spending in NSW is improving the accessibility and connectivity of metropolitan office markets.”
He said the opening of the Sydney Metro Northwest improved the accessibility of the North West corridor and expanded the workforce catchment zone for Macquarie Park as a result.
Offshore capital sources have also shown a preference for Macquarie Park with a number of benchmark office transactions occurring in the precinct. Keppel Capital acquired Pinnacle Office Park at 4 Drake Avenue for $306 million, AEW acquired the Schneider Electric headquarters at 2 Banfield Road for $140 million and the Ascendas REIT purchased Macquarie Exchange for $167.2 million.
“In an environment of risk aversion, capital is attracted to modern assets with strong covenants and long-lease terms. A number of metropolitan office markets offer assets with these characteristics and is increasing the depth of the suburban office market buyer pool,” Mr Billiau said.
JLL’s head of research Australia Andrew Ballantyne said recent metropolitan office deals in Australia reflect an extension of the investment mandate offshore capital sources have to the Australian office sector.
He said it was important that investors understood the different characteristics and drivers of metropolitan office markets.
“We believe the strongest performing metropolitan office markets will be those with key industry clusters, strong workforce catchments, good public transport infrastructure, retail amenity and connectivity with the CBD,” Mr Ballantyne said.
Flint Davidson, CBRE head of capital markets office (Pacific), said the office sector will present the usual year-end run of transactions while volumes will be lower than in prior years.
“Transaction timeframes have increased due to longer due diligence periods and, in particular, significantly longer timeframe to clear the Foreign Investment Review Board (FIRB). This is likely to push a number of transactions into the first quarter of 2021,” Mr Davidson said.
