Foreign buyers pushing up office property sales in Sydney, latest data shows
Foreign investors, particularly from Asia, have an intense appetite for office buildings throughout Sydney’s CBD and Metro and have pushed up sales in the past 12 months.
The sector has seen ‘an extraordinary number of sales’ according to international real estate firm Savills which has itself recorded approximately $5.7 billion worth of office transactions, up 115% on the previous year.
‘Foreign investors, particularly from Asia, have for a number of years been drawn to the Australian market but it has never been as prolific as what we are now seeing,’ said Simon Hemphill, Savills director of NSW Research.
‘In the last 12 months foreign investors accounted for 46% or $2.61 billion of all sales in Sydney’s CBD and Metro areas,’ he added.
According to Stuart Cox, director of residential site sales, foreign investors are chasing higher returns and are drawn to Sydney because of the higher yields on offer. ‘If you look at countries such as Taiwan where yields are 2% and Sydney where they are upwards of 6% it stands to reason why they are being lured to our markets,’ he said.
‘With the majority of the more recent acquisitions having a residential conversion exit strategy we will continue to see more offshore groups focussing on these assets,’ he added.
Hemphill pointed out that there has been almost $600 million of investment by foreign investors in the last 12 months who have purchased Sydney CBD office buildings with the intention of developing residential towers in their place.
This trend has also been repeated outside of the Sydney CBD market, most notably the Lower North Shore office market. ‘As a result, yields have tightened by 25 basis points in secondary grade office towers in the Sydney CBD market, now ranging between 7.25% and 8.5%,’ he explained.
‘There are a number of buildings within the Sydney CBD that have already been withdrawn from the market or are earmarked to be withdrawn for conversion to residential or hotel use over the next three years. The potential future withdrawals add up to almost 130,000 square metres and would shrink size of the Sydney CBD by 2.6%,’ he added.
The firm estimates that there is currently $5 billion of unsatisfied mandates looking for core, CBD product or residential conversions. However, as there is a shortage of available stock, investors who are chasing quality assets within the CBD are looking to fringe locations for buildings with core characteristics or potential residential conversion upside.
Sydney is following in the footsteps of other international capital cities such as Paris, London and New York where inner city living is highly fashionable and it is this surge in demand for inner city locations that is driving the commercial market.
‘With foreign capital not going anywhere and the growing trend for inner city living I suspect that 2014 will result in another strong year,’ concluded Hemphill.