Melbourne demand soars among international investors
Melbourne has locked in its status as a prime international investment destination with its central business district recording the greatest yield compression over the past three years across CBD office markets globally, real estate group Savills says.
The trend is seen in major deals, including Dexus and its wholesale fund buying the landmark 80 Collins St development from QIC Global Real Estate for about $1.48 billion.
Charter Hall’s PFA Fund has also tied up a deal to buy a Melbourne office complex from Malaysian public services pension fund Kumpulan Wang Persaraan Diperbadankan for close to $200 million. The mandate was overseen by Investa which drove strong growth in the complex at 737 Bourke St’s income after it was picked up in 2010 for $113 million.
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A local player, believed to be backed by mainland Chinese capital, has also swooped on 420 St Kilda Rd, for a price thought to be over $95m after manager Vantage boosted its performance.
All the deals have been struck at tight yields either at or just below the 5% mark.
But in a landmark paper Savills says the long-time link between office yields and borrowing had “broken down” as buyers profiles had changed with fewer relying on bank borrowing.
Throughout the past three years, we have seen growing investor demand from foreign and domestic investors drive yields down to record low levels
Savills says a rise in interest rates is also unlikely to result in a corresponding rise in prime office yield. This means that as long as investment demand remains stable yields will also be locked in.
Melbourne led the charge over the past three years, with prime yields falling 174 basis point since 2015, followed by Beijing (down 132 basis points) and Berlin (dropping by 120 basis points).
Savills chief executive Paul Craig says while Australian cities were still off the 3 per cent mark hit by other overseas CBD markets “it would be prudent to assume yields here will fall in a similar trend in the next five years”.
Prime CBD office market yields now sit below 3% in Hong Kong, Frankfurt, Tokyo and Berlin, in a reflection of the new benchmarks being set globally. Savills forecasts that the Paris (3%) and Amsterdam (3.5%) prime CBD office markets could see market yields harden to under 3% by the end of 2019.
“Throughout the past three years, we have seen growing investor demand from foreign and domestic investors drive yields down to record low levels,” says James Girvan, Savills director capital transactions in Victoria.
“Investors are drawn to the Victorian capital, not only because of strong demand drivers and nation-leading economic indicators.”
This article originally appeared on www.theaustralian.com.au/property.