$91.5 Billion Property Changes Hands in 3 Years

Sydney/Melbourne markets record $12 billion in office sales in 12 months

Investors have splashed out $30.6 billion on Australian commercial property investments - office, industrial and retail - to September, with office sales alone, across Sydney and Melbourne CBD and metropolitan markets, of $12 billion in just 12 months.

The sales continues a record three year run on transition of ownership of commercial property in Australia with more than $90 billion changing hands and, according to Savills National Head of Research Tony Crabb, the next 12 months will deliver more of the same, albeit the lack of availability of stock could put a brake on the level of activity.

Office markets and off-shore buyers have been the key players with foreign investors snapping up 47 percent (57 percent in the CBDs) of the $16.4 billion in national office sales. Foreign investors also accounted for 30 percent of retail and nearly 25 percent of industrial stock nationally.

“The demand is still there. Superannuation money, and there’s lots of it, has to get reinvested somewhere, add private money and other institutional funds, and you have a strong and growing domestic pool of capital, let alone the $billions in foreign money likely to continue to seek Australian property.

“So it’s really a matter of supply. Will owners want to sell? What will they buy instead? Will new construction be enough to meet any supply shortfall? What we do know is that while demand may outstrip supply, we are in for another 12 months of very strong investment,” Mr Crabb said.

While Savills National Investment figures in the 12 months to September 2016 revealed a fall of more than $4.5 billion on the $34.53 billion outlaid in 2015, they were nevertheless well up on the $25.3 billion five year average.

Office sales at $16.4 billion were down 14 percent from $18.9 billion in the previous year, but up the five year average of $13.9 billion. Sydney accounted for $7.4 billion or 45 percent of national office sales – up 17 percent on the five year average of $6.32 billion - and also had the greatest number of transactions (75) while investors outlaid $4.67 billion on Melbourne office property, up 32 percent on the five year average of $3.53 billion.

Industrial sales, at $5.6 billion, were down from $6.33 billion, and up on the five year average ($4.5b), while Retail sales, at $8.6 billion, were also down on the $9.3 billion in the previous year, and up on the five year average of $6.9 billion.

Foreign buyers also dominated overall acquisitions with 38 percent of the market, followed by Funds (18%) Trusts (16%) and private investors (13%). 

Savills CEO, Australia & New Zealand, Paul Craig, said he was not surprised at the level of foreign investment.

“These figures are not unexpected, indeed there is little doubt that foreign investment in Australian property will continue to grow.

“Australia’s safe haven status will move into even greater focus in the coming 12 months as international markets struggle with political and economic issues - Brexit, a change of government in the US and elections in Germany and France - creating uncertainty in the minds of investors.

“Uncertainty is not a friend of investors and Australia’s stable economic and political climate will, perhaps more than ever, drive a very high inflow of overseas capital. Globally we are still considered cheap and we strongly believe those inflows from abroad, in particular from Asia and the Middle East, will grow again in 2017,” Mr Craig said.

Mr Craig added that the bulk of the off-shore capital flowing into Australia over the next 12 months would come from Asia with China the key player. Real estate international capital outflows from China, he said, had reached a new high in 2015 of more than $34 billion and was on track to better that record in 2016.

He said international capital inflow into Australia in the first three quarters of 2016 included $3.34 billion from the USA, $1.5 billion from EMEA (Europe, Middle East, Africa) countries and $7.7 billion from the Asia Pacific.

“Interestingly, long term European investors who have had a stake in Australian Property throughout previous cycles are gathering momentum again and are very focused on a return splash in Australia.

“Savills is bolstering its International teams in Australia in the expectation of considerably more fresh new capital hitting our shores. The challenge will be available stock,” he said.

Mr Craig said despite historically low yields there was still a very strong likelihood of further yield compression, “We are bound to see a major office deal below 5 percent in 2017, due to the breadth of aggressive capital chasing limited availability.”

Key transactions in the 12 months to September included:

• 600 Bourke St (M) - $231.9 million
• 121 Exhibition St/111 Bourke St (part) (M) - $675 million
• 420 George St (S) - $590 million
• 210-220 George St (S) - $160 million
• 300 Queen St (B) - $188 million
• 41 George St (B) - $159.8 million
• Campbelltown Mall (S) - Charter Hall $197 million 
• David Jones (S) - Scentre Group/Cbus $360 million.
• 485 Doherty’s Rd Truganina (M) - $102.5 million
• JPMorgan portfolio (6 assets NSW) - $250 million

At a glance: Year to September 2016

Total sales: $30.6 billion; previous year $34.53 billion; 5 year average $25.3 billion; Foreign investors purchased 38% or $11.6 billion.

Office sales: $16.4 billion; previous year $18.9 billion; 5 year average $13.9 billion; Foreign investors purchased $7.5 billion or 47%.

Industrial sales: $5.6 billion; previous year $6.33 billion; 5 year average of $4.5 billion; Funds purchased 30% or $1.68 billion.

Retail sales: $8.6 billion; previous year $9.3billion; 5 year average $6.9 billion; Trusts purchased 30% or $.258 billion.

Learn more about Savills research in office, retail and industrial sectors.