Commercial agents upbeat after $26.9bn year

Dexus has sold the Southgate Complex in Melbourne.

A six billion dollar sales slump hasn’t stopped Australia’s commercial property investment market from powering into the New Year.

Foreign investment continued to drive the market in the 12 months to December, accounting for almost half of the $26.9 billion spent across the commercial property sector.

The latest research from Savills Australia shows overseas investors splurged more than $10 billion – a 39.5% share of the total market.

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National head of research Tony Crabb says while total spending dipped from $33.7 billion in 2015, sales remained strong.  He says 2016 was 5% up on the long term average.

“There seems little doubt that both local and off-shore investor demand will deliver another year of outstanding growth in 2017,” Crabb says.

Office space accounted for the greatest investment last year with $14 billion in spending. Another $6.5 billion went on retail space and $6.4 billion on industrial property.

The foreign contingent was one of four key investor groups who accounted for a combined 84.3% of purchases including funds (18.6%), private investors (14.8%) and trusts (11.4%).

The David Jones store on Market St in Sydney remains up for sale.

The David Jones store on Market St in Sydney was one of the largest sales of the year.

New South Wales led the national count with $6 billion in office sales including $3.5 billion in non-CBD transactions – 47% of the national total. In the retail sector Queensland dominated with $2.1 billion or 32% of total sales, while the biggest industrial spend was in New South Wales with $2.7 billion.

The most significant retail outlays included $360 million by Scentre and Cbus for the David Jones menswear store in Sydney, $247 million from JP Morgan at St Collins Lane in Victoria and $228 million from Mirvac at Toombul Shopping Centre in Queensland.

There seems little doubt that both local and off-shore investor demand will deliver another year of outstanding growth in 2017

JPMorgan spent $250 million across six industrial sites in New South Wales and ARA invested more than $578 million for office space at Southgate in Victoria.

Savills Australia and New Zealand CEO Paul Craig says lower yields are likely across Sydney, Melbourne and Brisbane markets as investors factored in future rental growth. “It now seems absolutely clear that yields will tighten even further in anticipation of future rental growth, as lower vacancy rates across the Sydney and Melbourne markets drive rental increases and a significant fall in incentives,” Craig says.

Crabb says the foreign investor take at nearly 40% was 80% up on its 22% share in 2014, reflecting both the relative strength of the Australian investment market and Australia’s safe haven status. The local institutional investor share of the market fell from 48% in 2014 to 30 per cent last year, he says.