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Investors chasing security create new asset class

Colliers transacts more than $2 billion in long WALE assets in six months

Growing appetite for office investments across Australia that offer the security of a long lease has created a new asset class of its own.

According to Colliers’ Capital Markets experts, uncertain market conditions over the last 18 months have led to a strengthening of the buyer pool for long WALE assets.

“As we have seen throughout the pandemic, capital has been actively pursuing lower risk investments, which in the office market is a deep bias for long WALE assets backed by strong tenant covenants,” Adam Woodward, Colliers’ Head of Office Capital Markets, said.

“As a result, investors have been willing to look beyond the core CBD markets of Sydney and Melbourne to acquire these types of investments. The weight of capital chasing properties with long terms leases has essentially created Long WALE as a new asset class of its own.”

Colliers’ Capital Markets team has facilitated the transaction of more than $2billion in long WALE office assets in the past six months alone.

This has included 17 O’Riordan Street in Alexandria, NSW for $159million; 913 Whitehorse Road in Box Hill, Victoria for $230million and the largest metropolitan office sale in Australia being sale of the Woolworths headquarters in Bella Vista in NSW for $463.25million.

James Mitchell, Colliers’ Director of International Capital Markets, said in the past, many investors had only considered core office markets such as Melbourne and Sydney as part of their investment strategy.

“However, we are now seeing investors looking to other markets such as Brisbane, Canberra and Adelaide, and further afield to regional locations to secure assets that meet the long WALE profile,” he said. “This has resulted in a significant tightening in yields for this very specific asset class, regardless of location.

“Investor interest in long WALE assets is not a new trend, however the current uncertainty has increased focus and therefore competition for these assets. Yields have been driven downwards as a result.

“As this is a very specific kind of asset there is limited stock that meets this profile. This has created a separate office asset class of Long WALE assets, which is agnostic to location or grade as long as it meets this specific profile.

“The buyer profile is also really diverse. There is a very deep pool of both offshore and domestic buyers chasing long WALE assets, regardless of location.”

Kate Gray, Colliers’ Director of Research, said analysis of average long WALE sales (above $50million) across all CBD and metro office markets over the last 10 years showed yields trending downwards.

“This has been driven by the tightening of metro office yields over the last 18 months,” Ms Gray said. “Now metro office yields for long WALE assets are achieving yields which are slightly tighter than CBD market sales evidence, however this is due to a lack of CBD Long WALE transactions. We expect when there is transactional evidence yields will tighten further.”


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James Mitchell

National Director

Sydney

James brings a wealth of knowledge to the commercial property sector with a key focus on offshore capital investing in the Australian real-estate market. James advises inbound capital on opportunities and provides them with the platform and resources to underwrite and execute cross border transactions through both direct and capital partnering transactions.   

With a background in valuations and extensive experience in fund-through development and investment grade assets James provides an in-depth approach to the process.

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Adam Woodward

Head of Capital Markets | Australia

Sydney

Adam is a highly motivated, well rounded property professional with proven experience in deal origination and completion of major property transactions across all investment sectors. Adam’s specific experience has been working in a transaction team for a major public and wholesale institutional investment business.

He is particularly focussed on achieving the best results for his clients, with his ability to drive and generate well balanced, cost effective and collaborative solutions.

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