Interest in commercial property in Perth’s CBD is on the rise, with interstate institutional groups and syndicators eyeing Perth as an alternative to crowded and competitive eastern states markets.
Interest in commercial property in Perth’s CBD is on the rise, with interstate institutional groups and syndicators eyeing Perth as an alternative to crowded and competitive eastern states markets.
Since a bumper year of transactions in 2013, when $1.34 billion worth of CBD properties changed hands, office transactions in Perth have been becoming increasingly rare.
A recent office market report by Knight Frank Australia showed there were four sales in 2014, totalling $604.4 million, while there were just three sales last year for a total of just $216.2 million.
While investors are likely to face short-term challenges because of the CBD’s office vacancy rate, which ranges between 20 and 23 per cent depending on which research agency the figures come from, it is becoming clear that office buyers are taking a bigger-picture view of the Perth market.
Speaking at a recent market outlook breakfast, CBRE head of research Stephen McNabb said the worst was likely over for Perth.
“We think that with much of the majority of the office supply now delivered, Perth’s office vacancy will peak at the end of 2016,” Mr McNabb said.
“This will bring a little more stability to the market in 2017 as the worst of the increases in vacancy are now behind us.”
Five transactions are known to be currently in progress, totalling around $500 million, however, most of those deals were initiated in the latter half of last year.
Those deals include the $113 million sale of a half stake in Exchange Tower, which was bought by local syndicator and developer Primewest.
The Exchange Tower deal was followed by the sale of the Forrest Centre for between $210 million and $220 million, understood to be under contract to Chinese investment vehicle, Perth Upper China Hotel.
Two other buildings are also known to be under contract: 81 St Georges Terrace, which Singaporean fund ARA Group is understood to have bought; and Eastpoint Plaza, which is under contract to Angelo Del Borello’s Acure Asset Management for $52 million, subject to a $35 million capital raising scheduled to be completed by the end of the month.
Cape Bouvard Investments also joined the investment splurge, buying the tower at 12-14 The Esplanade in February for $51 million.
One deal that’s already settled is the $64.2 million sale of 190 St Georges Terrace, which Credit Suisse bought from local syndicate Terrace Properties in February.
JLL managing director John Williams said the big change in the market in 2016 was an increased level of interest from east coast-based institutional investment groups.
“We’ve gotten to a point where the yield differential between Perth and the eastern states is such that Perth is now compelling,” Mr Williams told Business News.
“There is a fair bit of competition still for assets in Sydney and Melbourne in particular, and when the yield gap gets to 200 basis points or thereabouts, that’s when investors start to go ‘well, we have to start looking at Perth’.
“That’s been driven by two things; there has been a lot of yield compression in the eastern states, particularly because demand for product in those markets from investors, and also what has happened is a lot of the rents in Perth have reset.
“So you have a yield differential and also lower rents are at play for Perth assets, so there is the real prospect for medium to long-term growth.
“It’s understandable that they’re now turning their attention to Perth.”
Colliers International director of investment services Ian Mickle said well-leased buildings were attracting significant interest from offshore and local institutional investment groups, as well as property syndicators such as Primewest and Acure.
“It’s been pretty active so far this calendar year, there is a fair bit that’s going to transact,” Mr Mickle told Business News.
“There is a fair bit of interest in development sites from offshore as well; there’s been a couple hundred million in development sites sold this year in the city, so that’s been a boon for the market.”
However, as has been the case in recent years, a lack of available assets is likely to be a constraint on further transactions.
There is only one major CBD office building in Perth known to be for sale, with Charter Hall planning to offload the east building at Workzone following the sale of its Eastpoint Plaza.
Earlier this week, Charter Hall appointed Knight Frank and JLL to jointly manage the sale, with the building expected to fetch around $70 million.
Mr Williams said the lack of available assets was evidence of a disconnect between the price owners would accept, and what investors were willing to pay.
“The interest is there because the pricing is good from a buyer’s point of view, but what that means is you have to have a willing seller,” he said.
“Values are down from what they were a year ago, so if somebody doesn’t need to sell then there is a big likelihood that they are going to hang on, because rents will start to grow again in a couple of years.”
