Real estate transaction volumes in Australia declined by 13 percent in the financial year 2016 largely due to the shortage of investible stock, data published by global property consultancy JLL showed.
Total investment in Australia’s office sector was estimated to be $9.37 billion last year, a 9 percent drop from the $10.27 billion recorded in 2015, according to JLL’s research.
However, Sydney’s office market was a key outlier, showing a 22 percent increase in total investments on a year-on-year basis. From $3.6 billion in 2015, investment volumes in the city increased to $4.4 billion last year.
Megan Walters, head of research for Asia Pacific, at JLL told PERE that an increasing weight of capital is looking to buy office assets in Sydney. The number of offshore buyers in the market is estimated to have increased by 53 percent last year in comparison to the previous year. In contrast there was only a 1 percent increase in the pool of domestic buyers acquiring office assets in Sydney.
Much of this demand is being driven by strong rental growth coming from increasing demand from occupiers, particularly financial services and technology firms. Meanwhile there has also been a reduction in office stock resulting from demolition of buildings to allow for the construction of the Sydney Metro.
“Rental growth is an additional ingredient in the investment thesis and investors are confident in under-writing medium rental growth expectations in the Sydney CBD. Current pricing levels has stimulated vendor motivation and a number of large assets will be covered to the market over the first part of 2016,” commented Andrew Ballantyne, Head of Research for Australia, at JLL.
According to the property consultancy, office rents in Sydney’s central business district were up 22.3 percent last year, while those in Melbourne increased by 13 percent compared with the previous year.
“For investors with their eyes on the Australian market, there is the potential to capitalise on the upturn in the leasing market within the office sector, where lower Grade A or good Grade B assets have the potential for rental growth and lower vacancy risks,” Walters added.