Returns soar for savvy office investors

Investors are reaping the rewards for splashing cash on Australian office stock.

A new report from the global property services group JLL reveals returns on office assets last year broke historic benchmarks.

The Australian Office Investment Review and Outlook found investors are now cashing in with returns for core real estate up between 6.5% and 8%.

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Suburban office markets showed strength amid the investor demand with $5.1 billion of transactions across non-CBD markets — 37% of total office sales in 2016.

That’s 7% up on traditional annual figures.

JLL’S head of office investments (Australia) Rob Sewell says the analysis points to a bumper year ahead.

“We are currently in the middle of an unprecedented liquidity cycle, expressed both by high levels of transaction volumes and the number of bidders on major assets,’’ Sewell says.

Adelaide and Canberra are the epitome of low risk with the volatility of returns typically lower through the cycle

“Total office volumes last year were curtailed by a lack of available product.’’

Nevertheless, 2016 still ranks as the third highest year on record for volumes, at $14.46 billion.

Sewell says the number of underbidders on campaigns last year across geographies was also up.

JLL’s head of international investments (Australia) Simon Storry says Asia Pacific investors are also showing keen interest..

“Offshore investors accounted for 42% of the market, dominated by Chinese, Singaporean and US investors,’’ Storry says.

Total office volumes last year were curtailed by a lack of available product

He says potential sources of capital in 2017 include South Korea, Hong Kong and Germany.

JLL’s head of research Andrew Ballantyne says investors navigating the Australian office investment landscape have plenty of opportunity.

“Sydney and Melbourne can be classified as the high growth markets,’’ he says.

Office CBD rents are projected to rise by 34.9% in Sydney and by 18.7% in Melbourne.

“Brisbane and Perth offer counter-cyclical opportunities and are considered to the cheap side of fair value markets. Adelaide and Canberra are the epitome of low risk with the volatility of returns typically lower through the cycle,” Ballantyne says.