According to JLL, Brisbane, Perth, Adelaide and Canberra metropolitan office markets, having experienced challenging physical market conditions in recent times, were showing tangible signs of recovery.
Brisbane’s metropolitan market recorded $842.1 million in sales, ahead of Perth with $136.4 million, Adelaide with $30.6 million and Canberra with $35.4 million.
Though well above the 10-year average of $3.84 billion, the total investment in Australia’s metropolitan office markets in 2018 fell short of 2017’s record high of $6.29 billion.
“The reduction in transaction volumes was not a symptom of reduced investor demand, but related to a shortage of available product,” JLL head of metropolitan sales and investments in Australia Marty Janes said.
James noted that the composition of investors within metropolitan office markets was also evolving with the emergence of institutional investors, accounting for 46 per cent of purchases over 2018, complimenting the historically strong interest from private capital sources.
“As a result of demographic, structural and economic considerations with the viability of large-scale commercial office developments has led to institutional investment and a more diverse range of capital sources,” Janes said.
Despite rising levels of institutional investment across metropolitan markets, private and high net worth investors remain active in terms of acquisitive activity with private developers becoming increasingly priced out of metropolitan markets as they struggle to meet return thresholds.
“Institutional investors are starting to identify larger-scale opportunities outside of the CBD and will deploy significant capital into assets where they can generate strong risk-adjusted returns,” Janes said.
“However, boutique fund managers have identified unsatisfied demand in this market and have an opportunity to invest in volume rather than one large-scale project.”
According to JLL, yields in the Sydney fringe market for prime stock are ranging between 5 per cent and 5.25 per cent.
In North Sydney they are between 5 per cent and 5.5 per cent, while in the Melbourne fringe market they are between 5 per cent and 5.5 per cent.