Perth heads for $1bn in office deals in 2018

by Larry Schlesinger (commercialrealestate.com.au – 10 October, 2018)

Sales of Perth office towers are expected to top $1 billion this calendar year in a sign of renewed optimism in the country’s weakest, but improving, capital city office leasing market.

More than a third of this figure is reliant on the $350 million sale of the premium-grade Exchange Plaza office tower, being offered to the market by joint owners AMP Capital and Primewest.

Commercial agents CBRE, who made the $1 billion forecast in a new report titled Counter-cyclical Perth: Is now the time to buy? said the revival of Western Australia’s resource-dependent economy and the much higher returns on offer compared with Sydney and Melbourne were proving attractive to counter-cyclical investors.

“This year has seen a significant spike in interest for Perth assets from both domestic and offshore investors, with the total transaction volume expected to reach as high as $1 billion by the end of 2018,” said CBRE’s head of capital markets for WA, Aaron Desange.

“Investors with portfolios heavily weighted to Sydney or Melbourne are increasingly seeking to acquire assets in WA to reduce portfolio risk by providing a hedging impact.

“And with significant yield premiums on offer compared to east coast and Asian markets – averaging 220bps in the case of Sydney – greater transaction activity in Perth is only hindered by a lack of investment-grade assets being offered for sale,” Mr Desange said.

Sales this year in Perth include Charter Hall’s WorkZone West at 202 Pier Street, which was bought by ASX-listed Elanor Investors Group for $125.25 million in June, the $190 million debt-funded deal for Sirona Capital’s Kings Square project in Fremantle, and Growthpoint’s acquisition of 836 William Street for $91.3 million.

While Perth’s office market still has the highest capital city vacancy rate at 19.4 per cent, this is down from a peak of 22.5 per cent in January last year boosted by rising white collar employment growth leading to a stabilisation of rents, according to the CBRE report,

“We expect rental growth will accelerate from 2019, and as a result, the current yield spread over Sydney, which is at an almost-record high, will gradually narrow to a level more consistent with the long-term average of 125bps,” said CBRE research manager Gemma Alexander.

“As this narrowing of the yield spread occurs, Perth will outperform Sydney in terms of capital growth and total return,” she added.

Ms Alexander said timing in counter-cyclical investing was critical to investors capturing any capital gain as the market started improving.

“If an investor decided to enter the Perth CBD office market in 2019, capturing this outperformance will require holding the asset for a longer time period,” she said.

05 Nov 2018