Movement in the metro middle markets

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. 

NSW

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.

Read more.

VIC

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.

Read more. 

QLD

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.

Read more.

ACT

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.

Read more.

SA

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…

Read more.

Read more.


Related Experts

Matthew Meynell

Head of Investment Services | Australia

Sydney CBD

As the Head of Australia’s largest investment sales team, Matthew drives industry leading initiatives back by a team of professionals at the forefront of the industry.

His ability to identify trends in the market has seen him develop a strong proficiency in Middle Market Office assets, Offshore capital and complex workout solutions in the Restructuring and Insolvency space.

By empowering his team with the right expertise and market experience, Matthew has built specialised workforces within the Colliers business to generate revenue, deliver exceptional results and exceed client’s expectations.

Matthew’s investment into relationships sees him deliver enduring value to his team, clients and their business’ whilst mobilising the international Colliers offering to develop a collaborative and effective strategy.

By doing what’s right for his team, the greater Colliers business and his clients, he has established himself as an exceptional leader within the business and the property industry.

View expert

John McCann

National Director | Sydney Metro Sales

Sydney West

29 years’ experience in Commercial, Investment Sales, Development and Portfolio Sales. With over 18 years with Colliers International's Investment Sales I have a strong understanding of Parramatta CBD and surrounding metro markets with recent transaction in Burwood for $80 million , $80 million in Sydney Olympic Park and Parramatta for $81 million with 3 transactions in 2017 totaling over $200,000,000 with another currently in Due Diligence i early 2018 for $70 plus million
‚Äč

View expert

Peter Bremner

National Director | Melbourne Metro Sales

Melbourne East

Peter has a total of 25+ years’ experience in the commercial real estate industry including over 23 years with Colliers International. 

He started his real estate career as a Valuer in 1991 at the City of Nunawading and obtained his qualification as a Valuer in 1993.

Peter joined Colliers International in June 1993 and commenced as an Assistant Valuer.  From 1994 - 1997, he concentrated on retail & industrial sales and leasing in Melbourne's south-eastern suburbs. 

Peter joined the Commercial & Investment Sales department at the start of 1998 to specialise in the sale of metropolitan office investments, commercial and residential development sites and vacant possession office sales. Peter’s track record for Melbourne city fringe and metropolitan office investment sales between $10 million - $80 million is unrivalled.

He was appointed National Director of the Investment Sales Department, Eastern Office in mid-2012.

View expert

Samuel Biggins

Director | Queensland

Brisbane CBD

Sam has more than a decade of experience in managing commercial real estate transactions for institutional and high net worth clients across the Asia-pacific region and has participated in over $1b in transactions in the last 5 years. 

Sam’s role is to provide leadership to the Investment Services business across Queensland. He offers guidance and drives the national initiatives, including Middle Markets, Asia Market engagement, Restructuring Property Services and our Premium Investments team. 

In 2016 he relocated to Colliers’ Brisbane office after 5 years with the firm in Singapore and Hong Kong, where he was responsible for Colliers ‘ANZ’ desk, working across the ANZ and Asian businesses channeling Asian capital into the Australia and New Zealand real estate markets.

Sam is an expert in negotiating cross border transactions having executed deals and mandates for clients in Australia, New Zealand, China, Hong Kong, Singapore, India, Russia and Indonesia.

 

View expert

Matthew Winter

Director | Capital Markets & Investment Services

Canberra

As a  leader of the ACT Investment Services and Capital Markets team, Matthew specialises in the sale of CBD and Metro Office, Strata Office, Retail and Premium Investment assets. Matthew has positioned himself and his team at the forefront of the Canberra market, achieving over 60% market share in the past two years and transacting over $500m in office sales. His efforts have earnt the Colliers Canberra team the title of REIACT Commercial agency of the year for 2017, 2018 and 2019 and well as REIA Commercial Agency of the year 2019.

Matthew collaborates as part of the National Investment Services team and is a key decision-maker within:

·         Premium Investments Practice Group

·         Strata Practice Group

·         Middle Markets Office initiative

·         Restructuring Property Services team where he is the ACT team leader

He values his investment in relationships, and partners with private and institutional clients locally, nationally and internationally (through local travel to Asia). This enables him to deliver enduring value to any property appointment acting with integrity and discretion. 

Critical to his success is his ability to extract the maximum sale price for his clients, even in challenging market conditions. By combining the right expertise, market experience and connections, he has developed a strategy to maximise the potential of property to drive exceptional results.

View expert