Colliers’ Office Middle Markets Transaction Review for 2019, found that current investment opportunities available in the $10 million - $100 million range which comprises the Middle Markets Office space, offers investors a competitive yield in the current rental landscape and strong value-growth potential.
There were 154 transactions in the middle market’s office space in 2019, totalling $4.7 billion. Despite metro markets recording significantly more transactions (103 Transactions, totalling 67% of assets, compared to 51 CBD assets; 33%), CBD Assets were the star performers with an average yield of 4.89% and average capital value of $7,904 per sqm. By contrast, Metro assets recorded a 6.23% yield and capital value of $5,638/m2.
According to Colliers, the 2019 track record suggests that middle markets will offer large institutional clients including REITs, Syndicates, Unlisted and Wholesale fund purchases, as well as private investors, the opportunity to invest and capitalise on this currently untapped sector of the office market.
“Transactions from 2019 indicate that the tightening yields in the office sector have not yet affected the Middle Markets space, when compared to office assets valued at over $100 million,” said Matt Meynell, Head of Investment Services at Colliers.
“The middle markets asset class proposes excellent returns & growth potential to investors seeking secure and strong growth. The space becomes more enticing in the current volatile economic climate because of the security of the assets and their growth potential when investors focus on unlocking entrapped value.”
“This is being seen across all Australian capital cities in both the CBD and fringe/metro office markets; however, the geographic trend becomes most obvious when comparing the tight CBD office market to the Metro Markets nationally.”
“Colliers’ sale of building 10 at 658 Church Street in Richmond, Victoria, on behalf of Blackrock for $92.525m at a passing yield of 4.06%, is indicative of this trend.”
“The NLA sold was 7,959m2 achieving a capital value of $11,625/m2. The tighter yield explains the high capital value for the asset whilst allowing room for growth potential as yields continue to tighten in the market.”
According to Colliers analysis, active purchasers in the Office Middle Markets space throughout 2019 include Charter Hall, and Centuria with four acquisitions, ESR with three and Collective Capital, Australian Unity Property Income Fund acquiring two assets each throughout 2019. These acquisitions totalled $675m in transaction value and achieving an average yield of 6.42%.
Similarly, many large vendors been divesting assets to raise equity. Throughout 2019 Blackstone divested four assets along with other large institutions such as Charter Hall, ESR - Dexus and the Private Equity fund managers Quintessential Equity, who each divested two assets throughout the year. These disposals totalled $528m in transaction value.