Global institutions target Australia as office hunt picks up

Despite office tower values being reset in global capitals in the northern hemisphere, real estate agency CBRE points to the deeper liquidity for big ticket offices in the Asia-Pacific. Picture: Getty Images

The dramatic shifts in interest rates and government bonds that have rocked global real estate have put Australian office blocks firmly on the agenda of some of the world’s largest players.

While the local market is yet to fully reset as a series of transactions are still in train, investors are now chasing top-quality stock amid concerns about inflation and how aggressive and protracted the interest rate tightening process will be by the central banks.

Despite office tower values being reset in global capitals in the northern hemisphere, real estate agency CBRE points to the deeper liquidity for big ticket offices in the Asia-Pacific, where volumes slipped by just under 5 per cent last year.

The faster return to office in parts of Asia also prompted a more positive attitude among investors.

“Transaction volumes for office ­assets in Asia remained relatively more resilient, primarily due to higher levels of physical office utilisation rates in the region, which is driving higher levels of investor confidence towards the sector,” CBRE head of international capital, Pacific and Southeast Asia, Stuart McCann said.

“As a result, if you monitor the largest top 10 office deals in the major markets of Britain, Singapore, Tokyo and across Australia over the past year, around 80 per cent of the capital on the buyside involved Asia-domiciled investors.”

Global investors, including sovereign wealth funds, pension groups, insurance houses and listed REIT investors, are benchmarking real estate markets on a relative basis.

CBRE says global gateway markets are moving at different speeds in lifting interest rates, with markets such as Britain and the US leading the way most aggressively, with jumps of 390 basis points and 450bps respectively. This has prompted faster repricing of real estate assets, but investors are also looking at the differing outlooks of large cities.

“While investors are increasingly assessing markets on a relative value basis, we think it’s equally important to benchmark markets on a relative performance basis,” Mr McCann said.

“If you benchmark the growth prospects of Sydney versus the other large office markets these major investors are pursuing such as the UK, Tokyo and Singapore, Sydney is exceptionally well positioned to outperform from a GDP, population growth and office market rental growth performance.”

CBRE head of office capital markets, Australia, Flint Davidson, said that when measured against those centres, Australian markets compared favourably across several growth measures.

“Sydney, for example, is projected to generate 13.6 per cent net face rental growth over the next three years, which is the highest level among these markets. It is also underpinned by a lower supply outlook due to the challenges in bringing on new developments which are generally precommitment-led,” Mr Davidson said.

The big players were already moving. “We are working with a number of large global investors who see the current window as a unique opportunity to access primes assets in the core markets of Australia that in other times in the cycle have been very difficult to secure,” he said.