The value of commercial property transactions is expected to rebound strongly over the remainder of 2014 after a slow start to the year, according to CBRE.
Sales of office, retail and industrial assets priced over $5 million totalled $3.6 billion over the March quarter, down 17 per cent on the $4.4 billion of assets that sold in the same period last year, CBRE figures show.
“The tap has definitely not been turned off,” CBRE regional director of capital markets, Josh Cullen told The Australian Financial Review.
Mr Cullen said the lower sales activity was a timing issue, with no signs of easing in buyer interest from both domestic and offshore purchasers.
“The current level of buyer inquiry and the pipeline of property that is either in due diligence or being marketed at present suggest that sales volumes in the second quarter will be extremely strong,” Mr Cullen said.
“The inquiries we’re receiving have been equal to, if not higher, than they were in the first quarter of last year.”
Mr Cullen said the Asian sovereign wealth funds would be the next big investment wave to hit Australia, while domestic funds were also ramping up their activity with new wholesale investment mandates.
TOWER CAMPAIGNS CLOSE
CBRE expects to shortly conclude three major office tower campaigns with a combined value of $850 million.
Mr Cullen said $4 billion in offers had been received for the three properties – Westpac’s Sydney office headquarters on Kent Street owned by Mirvac, the NSW Police Headquarters in Parramatta and the CP3 office tower in Brisbane – and they were in due diligence.
An upswing in sales activity is also expected in the industrial sector with $500 million in stock in due diligence and another $700 million of property available to sell in the second quarter. “Investor preference remains for core assets, which are tightly held in all markets in Australia, but they are starting to move up the risk curve,” said Mr Cullen.
He added that Asian buyers were showing appetite for “twist assets” those with mixed use potential for residential, hotel and serviced apartments as seen with a number of office tower conversion projects in Sydney, Melbourne and Brisbane.
OFFICE VACANCY RISING
CBRE head of research, Stephen McNabb said overall quarterly volumes in Sydney and Melbourne were ahead of levels reached a year ago, while down in Brisbane, Perth and Adelaide.
“Office valuations appear fairly balanced at the moment. The pressure point in most office markets remains rising vacancy and associated income risk. “ Sydney appears to be better placed, with only 1-2 per cent point increase in vacancy expected over the next two to three years,” he said.
Mr McNabb said an improvement in the industrial and retail sectors was expected, particularly for large format, sub-regional and neighbourhood centres, as these appeared to be best placed to benefit from the economic recovery and an improvement in rent growth. Further yield compression was expected in these sectors, particularly in secondary grades as the rent cycle improves.