Sales activity in Sydney’s CBD was approximately $2.6 billion, up 139% from $1.1 billion in the previous 12 months. In Sydney’s North Shore markets sales activity was up 170% from $421 million to $1.1 billion.
The analysis report says that in both locations the Fund and Trust purchaser categories were the most active. In the CBD Funds and Trusts each purchased 35% of the stock sold or $1.8 billion and in the North Shore, Funds and Trusts purchased 53% and 12% respectively or $704 million. Foreign investors purchased a combined $944 million in Sydney’s CBD and North Shore markets.
Whilst a large percentage of the Fund purchaser category are domestic based buyers, the capital is quite often from an overseas source. Savills estimates that there are 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.
‘The long awaited compression in prime yields has started to surface in the Sydney CBD office market. This combined with continued face rental growth has heralded the return of strong buyer appetite, both domestically and internationally,’ said Simon Hemphill of Savills Research.
‘Indeed, the $2.6 billion of transactions over the last 12 months is the second highest level of sales recorded in the last decade, just behind the $3 billion of sales in the corresponding period in 2006. Likewise in the North Shore market this is the highest level of transactions since 2006 where we recorded $1.3 billion of sales,’ he explained.
The largest and most notable transaction for 100% ownership of an asset so far in 2013 was that of 231 Elizabeth Street which sold for $201 million in February, making it the largest single property transaction in Sydney for over a year.
‘Recent interest in secondary grade buildings with either residential upside or development potential from both overseas and local investors has also created price tension. Indeed, during the last quarter, market evidence suggests that indicative market yield for B Grade assets firmed by 25 basis points at both the upper and lower end of the range. This tightening has resulted in a 25 basis point shift in average B Grade yields which now range between 7.5% and 8.5%,’ added Hemphill.
