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08-11-2014, 08:55 AM
Sydney tower market proves 'red hot'
Larry Schlesinger
509 words
6 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Investment in CBD office towers is on course for its highest level since the 2008 global financial crisis, according to the LJ Hooker Office Market Monitor.
Over the first nine months of the year, LJ Hooker Commercial recorded $13.5 billion of assets changing hands, more than the total for the whole of 2013, with the next three months looking buoyant.
"Investment markets are running strongly, with keen interest from both domestic and overseas investors," said LJ Hooker national research manager Matthew Tiller.
"This is particularly the case for core assets (well-leased, prime CBD buildings with long weighted lease expiries) in Sydney and Melbourne.
"However, recently institutional investor interest has also strengthened for suburban office properties across all metropolitan markets. This strength has continued to see prime investment yields tighten and values rise," Mr Tiller said.Sydney and Melbourne show the way
The report highlighted the now established trend of a divergence between yields – tightening below seven per cent in Melbourne and Sydney – and the weaker leasing market, where incentives are at 30 per cent in Melbourne and Sydney, 32 per cent in Brisbane and 24 per cent in Perth.
However, the report said that across the country, leasing markets were slowly moving through the recovery cycle, led by rising tenant demand in Sydney and Melbourne with leasing incentives starting to stabilise. "Overall, face rents are nudging higher but not sufficiently to offset the rise in leasing incentives," Mr Tiller said.
In Sydney, LJ Hooker reported there were positive signs of recovery with vacancy rates declining within most regions and leasing activity beginning to strengthen. The vacancy rate was forecast to remain between 8 per cent and 9 per cent until 2016, before falling to 5 per cent by December 2017 due to a lull in office completions. On the investment side, LJ Hooker said the Sydney office market was "red hot" with average prime capital values rising to $11,000 per square metre and "driven by demand for assets across all price points and grades".Residential conversion's drawcard
"Office assets with development upside have received the strongest interest with those ripe for residential conversion most in demand," Mr Tiller said.
In Melbourne, LJ Hooker expected investment sales to match or exceed 2013, with growing appetite for smaller office properties with the potential for conversion to residential use.
However, the addition of new office supply would push up vacancy rates closer to 10 per cent by 2015, with leasing incentives remaining high and rents softer for the next 12 to 18 months.
Afterwards, the leasing market should strengthen, with the vacancy rate falling to 8 per cent by mid-2017.
In Brisbane, investment activity has pushed down premium grade yields by 20 basis points to 6.8 per cent. However, the CBD market has suffered from a loss of tenants to fringe markets.
In Perth, investment has slowed due to a lack of stock, while leasing conditions have worsened with incentives doubling in the space of a year.
Fairfax Media Management Pty Limited
Document AFNR000020141105eab600026
Larry Schlesinger
509 words
6 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Investment in CBD office towers is on course for its highest level since the 2008 global financial crisis, according to the LJ Hooker Office Market Monitor.
Over the first nine months of the year, LJ Hooker Commercial recorded $13.5 billion of assets changing hands, more than the total for the whole of 2013, with the next three months looking buoyant.
"Investment markets are running strongly, with keen interest from both domestic and overseas investors," said LJ Hooker national research manager Matthew Tiller.
"This is particularly the case for core assets (well-leased, prime CBD buildings with long weighted lease expiries) in Sydney and Melbourne.
"However, recently institutional investor interest has also strengthened for suburban office properties across all metropolitan markets. This strength has continued to see prime investment yields tighten and values rise," Mr Tiller said.Sydney and Melbourne show the way
The report highlighted the now established trend of a divergence between yields – tightening below seven per cent in Melbourne and Sydney – and the weaker leasing market, where incentives are at 30 per cent in Melbourne and Sydney, 32 per cent in Brisbane and 24 per cent in Perth.
However, the report said that across the country, leasing markets were slowly moving through the recovery cycle, led by rising tenant demand in Sydney and Melbourne with leasing incentives starting to stabilise. "Overall, face rents are nudging higher but not sufficiently to offset the rise in leasing incentives," Mr Tiller said.
In Sydney, LJ Hooker reported there were positive signs of recovery with vacancy rates declining within most regions and leasing activity beginning to strengthen. The vacancy rate was forecast to remain between 8 per cent and 9 per cent until 2016, before falling to 5 per cent by December 2017 due to a lull in office completions. On the investment side, LJ Hooker said the Sydney office market was "red hot" with average prime capital values rising to $11,000 per square metre and "driven by demand for assets across all price points and grades".Residential conversion's drawcard
"Office assets with development upside have received the strongest interest with those ripe for residential conversion most in demand," Mr Tiller said.
In Melbourne, LJ Hooker expected investment sales to match or exceed 2013, with growing appetite for smaller office properties with the potential for conversion to residential use.
However, the addition of new office supply would push up vacancy rates closer to 10 per cent by 2015, with leasing incentives remaining high and rents softer for the next 12 to 18 months.
Afterwards, the leasing market should strengthen, with the vacancy rate falling to 8 per cent by mid-2017.
In Brisbane, investment activity has pushed down premium grade yields by 20 basis points to 6.8 per cent. However, the CBD market has suffered from a loss of tenants to fringe markets.
In Perth, investment has slowed due to a lack of stock, while leasing conditions have worsened with incentives doubling in the space of a year.
Fairfax Media Management Pty Limited
Document AFNR000020141105eab600026