Local property investors circle CBD office market

Investors spent more than $8.1 billion on CBD office buildings last year – up 16% on the year before and the highest level of investment since 2007.

A new report shows Australian institutions were back in the market for CBD offices, with their activity double that of 2012.

And it says the biggest challenge for the office market this year will be the availability of stock.

Colliers International’s H1 2013 CBD Office Research & Forecast Report says the rise of Chinese investment in commercial property “was the most dramatic of all trends in 2013”.

The Colliers report shows Chinese groups bought CBD offices worth $580 million in 2013.

“Chinese investors were the most active purchasing secondary grade buildings in Sydney and Melbourne, many of which are considered residential development sites,” the report says.

It also shows:

* Prime stock worth $6 billion changed hands in 2013, compared with $2 billion of secondary stock.

* Australian institutions bought most of the prime stock, making up $4.2 billion of sales, while offshore groups spent $1.6 billion.

* Sales volumes in Melbourne, Brisbane and Perth were the highest since 1997.

* Sydney had the most sales, but its transactions were down on 2012.

* Australian institutions, offshore groups and syndicates bought most of the CBD office stock sold last year – while private investors and governments were the biggest sellers.

Colliers International Managing Director – Capital Markets & Investment Services John Marasco says growth in Chinese investment will continue to define the market this year.

“To date, most of the activity has been private Chinese investors purchasing secondary CBD office buildings however this started to change at the end of the year with the sale of Centennial Plaza to China’s sovereign wealth fund China Investment Corporation,” Marasco says.

“We are now seeing growth in institutions from China purchasing offices for investment, as opposed to development.”

But Marasco believes local buyers are ready to pounce.

“We are already seeing local demand competing, and in some cases winning, against the force of the offshore investors and this is set to continue further in the year ahead,” he says.

“On the back of increased activity by A-REITs, superannuation funds and privates, we will start to see the pendulum swing towards the locals in 2014.”

Colliers International National Director of Research Nerida Conisbee says there has been a disconnect between a strong investment market and a weak leasing market.

“We now consider that incentives have peaked in most CBDs and prime net effective rental growth is likely to occur in all markets with the exception of Brisbane,” she says.

“Given that leasing markets have been challenged over the past two years, it is likely that stronger performance this year will further drive demand for assets and increase values.”