Transactions heat up across the market
Transactions heat up across the market
Foreign funds and institutional buyers expect to have a prospective 2021-22 in the commercial office market after accounting for their largest share in tower deals in 2020. Despite the limitations on offshore capital posed by the COVID-19 disruption and a more difficult Foreign Investment Review Board approval process, foreign players over the past year achieved an increased investment role.
Since 2012, investment in office towers has fallen to its lowest level (about $10.9 billion) in Australia and New Zealand. In the Australian market, office tower transactions fell by more than half in 2020. Offshore investors accounted for $6.15 billion or 63.4 per cent of Australian office transaction volumes by value in 2020. This is the highest proportion on record when compared with total investment activity by all buyer groups, according to JLL figures. That share is well above the 10-year average of 44.2 per cent.
Fergal Harris, JLL’s head of capital markets for Australia, said the offshore divestment activity limited in 2020 with only $2.29 billion worth of assets sold by offshore capital sources. “Limited divestment activity showed that offshore investors valued the defensive nature of the Australian office sector. Rent collection statistics for prime-grade assets were consistently above the 92 per cent threshold over Q2 and Q3.”
The biggest single commercial deal of the year was the acquisition of a half stake in Sydney’s Grosvenor Place controlled by Dexus, one of Australia’s largest real estate investment company, made by the Chinese Investment Corporation for $925 million. Dexus Property Group was also the seller of the North Sydney office tower, bought by Huge Linkage a Hong Kong investor for above its book value of about $273 million.
Foreign investors, including Macquarie Park in Sydney’s north-west where Singapore’s largest office and industrial property trust, Ascendas REIT, bought an office tower under development in a $167.2 million deal, also headed into suburban office markets. A week earlier, Keppel REIT swooped on three towers in the same business park, buying from Goodman Group in a $306 million deal.
The most active offshore buyers in 2020 were from Singapore, snaring 25.2 per cent of the deal flow, China, at 12.9 per cent, and Germany, at 11.3 per cent. On the development front, and also underscoring the significant role played by foreign investors, Canada’s Oxford Properties on Wednesday won development approval from the NSW government for Parkline Place, a 39-storey office building above the north entrance of the Sydney Metro Pitt Street station. The tower, comprising 47,800 sq m of office space and 1290 sq m of retail, is one leg of $1 billion-plus over-station development on Pitt Street. Oxford has also lodged a development application for a 234-unit build-to-rent tower.
Construction on the station started in December by CPB contractors (Oxford’s consortium partners). Parkline Place scheduled to begin in late 2021 and is due to be completed when metro services begin in 2024.
Alec Harper, head of Australia at Oxford Properties, said they have seen the role of the workplace and the demands of office occupiers quickly evolve, but the need for connection has been a constant factor. “Parkline Place is a great example of Oxford’s commitment to customer-centric real estate that is built to connect.”
The bigger deals appear to have been exchanged the past 12 months but there remain still several offshore players circling for both development and buy hold investment opportunities. This will al ghelp to underpin Australian & NZ commercial markets which have been seen as secure long term plays especially in view of their handling of the global pandemic.
References:
- Chinese investor CIC swoops on $925m Dexus asset
by Ingrid Fuary-Wagner
- Foreign players steady office market
by Nick Lenaghan
https://www.afr.com/property/commercial/foreign-players-steady-office-market-20210310-p579ey
- Oxford Properties pushes up on Pitt Street
By Nick Lenaghan
https://www.afr.com/property/commercial/oxford-properties-pushes-up-on-pitt-street-20200723-p55erk