The Australian commercial property market has absorbed $10.5 billion in transactions in the past six months, with deal flow slowing only slightly from last year’s record haul.
After posting $6.1 billion in transactions of office towers, shopping centres and industrial property in the second quarter, the market is on track for its second-biggest annual total in the past decade.
The deal rate in the first half of 2014 is down 10 per cent on last year’s total, according to CBRE figures.
“Whilst activity is slightly down, this follows a record year and demand for core assets in the Australian market remains extremely strong, as we are still very attractive from a global perspective,” said Josh Cullen, CBRE’s national director for capital markets.
Local players have been competing strongly with offshore buyers for landmark assets. Among the headline deals so far, US private equity giant Blackstone outlaid $435 million to take a half stake from Mirvac in 275 Kent Street in Sydney.
Growthpoint Properties Australia, listed locally but majority controlled by its South African parent, acquired the New South Wales police headquarters in Parramatta for $241 million on a 7.6 per cent yield.
In Brisbane, the US-based Pembroke Real Estate bought the CP3 office tower in Brisbane central business district’s golden triangle for $122 million from Lend Lease and its joint-venture partner, the Abu Dhabi Investment Authority.
In Melbourne, it is blue-chip retail assets that have attracted major investors. GPT Group’s shopping centre fund snapped up a $496 million half-stake in the Northland shopping centre from Canada Pension Plan Investment Board. In March, property investors Morgan Ashe acquired the Harbour Town retail complex in Docklands for $150 million from ING.
SYDNEY IS THE MOST ACTIVE MARKET
Rob Sewell, JLL’s head of office investments for Australia said Sydney has been the most active office market so far this year, after Perth and Brisbane made the running last year.
“The large office transactions that have concluded and others which are in advanced stages of due diligence will result in new pricing benchmarks,” Mr Sewell said, pointing to the sale of 275 Kent Street on a 6.65 per cent yield.
“Core pricing in Australia’s office investment market has already moved in 2014, which will act as a catalyst for further product to be brought to market in the second half of the year.”
There are more big deals on the way, with a number of landmark office towers now in the market.
Among them are QIC’s $550 million 52 Martin Place. GIC is looking to offload a $400 million residential conversion opportunity at 175 Liverpool Street. In Melbourne, Cbus Property has put $1 billion in CBD property in the market, including a Docklands tower and the CBW complex.
Along with retail and office deals, industrial transactions have been running hot with close to $900 million in deals in the second quarter.
One of the biggest was the $107 million acquisition of a 10-asset portfolio from Abacus by fund manager Propertylink, partnered by Goldman Sachs and Grosvenor.
The pace is picking up already, with the market turning over $1.9 billion in commercial property deals in June, more than any other month in this half, according to JPMorgan.
Local players outspent offshore investors, but they also divested more in the past 12 months. As a result foreign buyers invested a net $4.4 billion.
CBRE’s Rick Butler said 10 of the top 16 office deals this year have involved foreign investors. On major campaigns typically half of the bidders are from offshore. “Even if they don’t end up being the buyer they are often the Damocles sword that helps push pricing for vendors.”