Traditionally the Metro Middle Markets were defined as modest office assets between $20-40 million, however due to significant net effective rental growth and yield compression, they can now capture a price point anywhere between $20 to $100 million, making them a very attractive option for savvy investors.
They key drivers for the rapid price expansion along the Eastern Seaboard are the core CBD markets achieving; record yields, strong capital values and unprecedented levels of rental growth. As a result, investors are being tempted to look beyond the country’s major CBDs and into attractive metro markets such Parramatta, Cremorne, Hamilton and Woden as they seek out high-quality investments at a more affordable price.
With over $180 billion being invested into national infrastructure up and down the country our metropolitan suburbs have never been more accessible to our core CBDs nor offered the sophistication of amenity as they now do.
Prepare to sit up and take note of activity in this space as Colliers predict the movement in the Middle Markets will accelerate into 2020 and beyond.
The spotlight is firmly on Parramatta as it remains the tightest market in Australia
John McCann | National Director of Sydney Metro Sales
With all major Sydney metro office precincts experiencing an increase in net face rents over the last year, the spotlight has been firmly set on Parramatta. The market has recorded the largest rental increase across the country at a 12.4% over the past year as well as the lowest A-Grade vacancy rate in the country at 0.8%. Notably, B-Grade assets have reached a 24 year low with a vacancy rate of 3.2%.
With the Parramatta market named the tightest office market in Australia, there is no surprise one of the country’s fastest growing metro CBDs is attracting attention from off shore investors from Asia, Europe and the Americas for the first time ever.
As Sydney’s fourth largest office market the commercial core currently sits at approximately 705,416sqm but by 2020 will be larger than 1,000,000sqm. Major developments already attracting pre-commitment include:
- Parramatta Square
- 2 Hassle Street
- 32 Smith Street
With increased development activity, a very tight leasing market and a shortage of middle market stock, Parramatta had become one of the most talked about markets in Australia.
Fund through turn-key transactions are defining the Melbourne metro markets
Peter Bremner | National Director of Melbourne Metro Sales
A strong commercial development pipeline, coupled with significant rental growth and several pre-commitments to high quality tenants, has drawn considerable investor movement in the Victorian City Fringe office market over the past 24 months.
Fund-through transactions are proving to be an emerging trend, particularly in strong leasing markets such as Cremorne, Richmond and Collingwood where these deals are closely tied to pre-commitments.
A prime example of this was the sale of MYOB’s new Melbourne premises in Cremorne at 17-21 Harcourt Parade by Colliers International in late 2018. This development was pre-committed to by MYOB for 10 years, sold as a fund through transaction to AXA Investment Managers for $100.1million, reflecting a yield of 5.43% and a capital value of $10,404$1 million/sqm.
Other recent examples have seen Seek pre-commit to 20,000sqm in Cremorne Street and Reece Plumbing to 7,000sqm in Balmain Street, reinforcing the precinct’s status as one of Melbourne’s most tightly held office hot spots.
In the first half of the year, Melbourne’s metropolitan office markets more broadly have recorded circa $300million of property above $5million change hands. This is compared to $660million at the same time last year. Key factors driving this investment include:
- Market uncertainty due to the federal election, lack of stock and a economic headwinds have contributed to decreased sales volumes;
- Outer East market leading the charge with $143.5 million (48%) of total sales YTD
- Low vacancy and strong rental growth in the CBD are driving office developments in the City Fringe
- $67.5billion in infrastructure investment is driving office investment across Melbourne
- Activity in the second half of 2019 is expected to boost total sales volume for the year significantly.
Yield arbitrage, growth opportunities and improved sentiment are giving Brisbane a competitive edge
Samuel Biggins | Director, Queensland
A broad spectrum of players including syndicators, listed and value-add investors have been actively trading ‘middle market’ office assets in Brisbane over last 18 months. The investment activity mimics the growth in the underlying office leasing market, driven by three primary factors:
- Improving sentiment in the leasing market with supporting transactional activity;
- Yield and capital value arbitrage on offer in Queensland vs the Southern markets;
- Scarcity of opportunity in the Southern states, particularly for value-add opportunities;
The market uplift is providing an ideal window to realise investments made during the downturn as these holdings enter their divestment windows – a prime case in point being a Centuria-managed syndicate exiting 19 Corporate Drive, Cannon Hill, which was a 2012 acquisition ($23.3m) and a June 2019 exit ($36.95m), delivering a 109% total return for investors.
Macreconomic themes remain positive and demand for office space continues to grow, resulting in buoyant market conditions and investment activity.
Canberra continues to maximise investment fundamentals
Matthew Winter | Associate Director, Canberra
Underlying buyer demand and confidence in Canberra’s fundamentals has remained high throughout 2019 so far, with several major transactions taking place.
Attractive high-quality assets combined with favourable pricing compared to other Eastern Seaboard markets has seen an injection of capital from Offshore and Australian Institutions looking for value which they are unable to source in Sydney and Melbourne.
With limited new supply on the horizon and continued population and employment growth, further market rental growth, is anticipated in Canberra CBD and Parliamentary Precinct assets.
As a result, the Canberra economy and real estate market is currently experiencing stable growth off the back of numerous factors which are positively influencing the City including:
- Strong Macroeconomic Conditions - an estimated ~$2.8b will be invested in major infrastructure projects by the ACT Government in the next 4 years
- Improving Leasing Fundamentals and Government Activity - PCA reporting an overall vacancy rate of 11% in July 2019, which is expected to further contract
- Increased Sales Activity - H1 2019 has seen a total of ~$338.3 million investment being recorded over the first six months
- Shifting Buyer Types - sales volume above AUD$10 million identifies the sources of buyer capital as local – 0%, domestic – 51% and off-shore - 49%. Notably, Asian based buyers were behind two of Canberra’s major sales.
Adelaide hits a 10 year high as confidence in the market is stronger than ever
Alistair Mackie | National Director, Adelaide
Adelaide is a diversified economy and therefore overall growth is generally felt as a result of the contribution by several sectors rather than one prime mover. The notable sectors contributing to this upside include; the expanding mining sector, increased defence sector spend, growing creative industries sector, significant healthcare sector infrastructure investment, energy sector investments in renewables, expanding tourism sector, and the Australian Space Agency headquarters being established at Lot Fourteen in Adelaide on the back of innovation and technology expansion within the state.
Adelaide is firmly on the international map as a great place to live, work and do business. There are a number of factors that have created a ‘perfect storm’ to make Adelaide the ideal place to invest…