British invasion as city office market looks up

Supplied Editorial 200 George Street Mirvac Sydney

Investment activity has seen a strong rebound in 2021.

Offshore buyers accounted for about almost half of the investment ploughed into Sydney’s recovering office sector in the year to the end of September.

The quantum is tipped to rise again as the year comes to a close with big deals pending on assets such as a half stake in the $1.8bn Grosvenor Place and the bulk of a $1.3bn Sydney portfolio offered by Dexus also selling.

JLL Research said of the $3.82bn in office transactions completed during the nine-month period, 44 per cent came from foreign investors as they struck $1.69bn of purchasing. This was ahead of the $3.47bn that JLL recorded last year.

Foreign investors from Britain have been the most active offshore groups circulating the Sydney office sector this year. British investors poured in about $730m out of the total $1.69bn of foreign investment recorded this year.

The largest deal by an offshore group in the third quarter was 200 George St, Sydney, an A-grade building purchased by Mirvac and backed by London-based funds house M&G Real Estate.

There were a further two office transactions by offshore investors for the third quarter this year. These included the sale of 241 O’Riordan St, Mascot for $151.5m to Britain’s Savills Investment Management and 432 Kent St, Sydney, sold on a sale leaseback basis for $24.5m to Singapore’s MKH Properties.

JLL head of capital markets, NSW, Luke Billiau said buyers were divided between those seeking core investments with strong tenant covenants and buyers after value-add investments with leasing upside or development potential, which he said “has been particularly relevant in the city fringe and metropolitan markets”.

“Assets in the CBD are becoming increasingly tightly held,” Mr Billiau said. “The scarcity of quality assets has encouraged investors into other established metropolitan commercial markets or into development projects.”

Foreign investment levels in Australia’s commercial market continue to remain elevated. JLL’s figures from January to September this year show that offshore investors accounted for $4.06bn of the total $9.94bn investment volumes into offices.

South Korean and Singaporean investors continue to be the most active in the office sector, followed by Britain and the US.

Last year, national foreign investment into the office sector for the whole year was $6.57bn out of the total $10.20bn investment activity.

JLL head of capital markets, Australia, Fergal G. Harris said national commercial property transaction activity was tracking well ahead of last year’s levels at the third quarter mark, with JLL’s figures showing $28.88bn of sales from January to September, and he was optimistic about where the market was headed.

“Investment activity has seen a strong rebound in 2021 as the economic recovery has gathered momentum,” Mr Harris said.

“While the lockdowns in the third quarter were a headwind to this recovery, some investors have looked through this temporary volatility and have acquired quality office product which is an indication that offshore groups are taking a positive long-term view on the market.

“The Sydney CBD has been the catalyst for this positivity, with $2.41bn of office sales recorded so far this year, which is already close to the 2020 total of $2.63bn.”