Foreign players steady office market

by Nick Lenaghan  (afr.com – 10 March, 2021)

Foreign funds and institutional buyers are expected to play a leading role in the commercial office market this year after accounting for their largest share yet in tower deals in 2020.

The increased investment role for foreign players over the past year was achieved despite the restriction on offshore capital posed by the COVID-19 disruption and a more onerous Foreign Investment Review Board approval process.

Investment in office towers fell to its lowest level since 2012, to about $10.9 billion for Australia and New Zealand combined. In the Australian market, office tower transactions fell by more than half over the previous year.

Offshore investors accounted for $6.15 billion or 63.4 per cent of Australian office transaction volumes by value in 2020, the highest proportion on record when compared with total investment activity by all buyer groups, according to JLL figures. That share is well above the 10-year average of 44.2 per cent.

“Offshore divestment activity was limited in 2020, with only $2.29 billion worth of assets sold by offshore capital sources,” Fergal Harris, JLL’s head of capital markets for Australia, said.

“Limited divestment activity showed that offshore investors valued the defensive nature of the Australian office sector. Rent collection statistics for prime-grade assets were consistently above the 92 per cent threshold over Q2 and Q3.”

The biggest single deal of the year was the acquisition by Chinese Investment Corporation of a half stake in Sydney’s Grosvenor Place, controlled by Dexus, for $925 million.

Dexus was also the seller when Hong Kong investor Huge Linkage bought a North Sydney office tower above its book value for about $273 million.

Suburban surge

Foreign investors also headed into suburban office markets, including at Macquarie Park in Sydney’s north-west where Singapore’s largest office and industrial property trust, Ascendas REIT, bought an office tower under development in a $167.2 million deal. A week earlier, Keppel REIT swooped on three towers in the same business park, buying from Goodman Group in a $306 million deal.

The most active offshore buyers in 2020 were from Singapore, snaring 25.2 per cent of the deal flow, China, at 12.9 per cent, and Germany, at 11.3 per cent.

On the development front, and also underscoring the significant role played by foreign investors, Canada’s Oxford Properties on Wednesday won development approval from the NSW government for Parkline Place, a 39-storey office building above the north entrance of the Sydney Metro Pitt Street station.

The tower, comprising 47,800 sq m of office space and 1290 sq m of retail, is one leg of $1 billion-plus over-station development on Pitt Street. Oxford has also lodged a development application for a 234-unit build-to-rent tower.

Oxford’s consortium partners, CPB Contractors, began construction on the station in December. Parkline Place is scheduled to begin in late 2021 and is due to be completed when metro services begin in 2024.

“We have seen the role of the workplace and the demands of office occupiers quickly evolve, but what has remained consistent is the need for connection,” said Alec Harper, head of Australia at Oxford Properties.

“Parkline Place is a great example of Oxford’s commitment to customer-centric real estate that is built to connect.”

26 Mar 2021