FOREIGN investors from the United Kingdom were the most active players in Sydney’s commercial office market, according to JLL.
JLL’s latest research reveals almost half of investment from January to September were attributable to offshore groups. During the period, $3.82 billion in offices changed hands – 44% to foreign investors ($1.69 billion).
Within that cohort, UK investors were the most active offshore, investing $730 million out of the total $1.69 billion of foreign investment volumes recorded in 2021.
The largest transaction purchased by an offshore group in Q3 2021 was 200 George Street, Sydney, an A-Grade building purchased by Mirvac and backed by UK-based M&G Real Estate mandate.
There were a further two office transactions including 241 O’Riordan Street, Mascot for $151.5 million, brokered by JLL to UK-based Savills Investment Management, whilst 432 Kent Street, Sydney sold on a sale leaseback basis for $24.5 million to MKH Properties based in Singapore.
Head of capital markets NSW Luke Billiau said investors are divided between core investments with strong tenant covenants and value-add investments with leasing upside or development potential which has been particularly relevant in the city fringe and metropolitan markets.
“Assets in the CBD are becoming increasingly tightly held. The scarcity of quality assets has encouraged investors into other established metropolitan commercial markets or into development projects,” Billiau said.
Meanwhile JLL research shows foreign investment levels in Australia’s commercial market remains at elevated levels, accounting for $4.06 billion (41%) of the total $9.94 billion investment volumes into the office sector.
South Korean and Singaporean investors continue to be the most active in the office sector, followed by the UK and the US. In 2020 the national foreign investment into the office sector for the whole year was $6.57 billion or 64% of the total $10.20 billion investment activity.
Head of capital markets Australia Fergal G Harris said transaction activity is tracking well ahead of 2020 levels at the Q3 mark, with JLL’s figures showing $28.88 billion of sales from January to September. This compares to the full year sales last year of $20.24 billion.
“Investment activity has seen a strong rebound in 2021 as the economic recovery has gathered momentum. Whilst the lockdowns in the third quarter were a headwind to this recovery, some investors have looked through this temporary volatility and have acquired quality office product which is an indication that offshore groups are taking a positive long-term view on the market.
“The Sydney CBD has been the catalyst for this positivity, with $2.41 billion of office sales recorded so far this year, which is already close to the 2020 total of $2.63 billion,” Harris concluded.