A strong contingent of offshore buyers added Perth office buildings to their portfolios in 2018 despite the city’s 19.4 per cent vacancy rate.
Figures for building sales (above $3 million) from Colliers International’s Research and Urban Economics, show foreign buyers, with purchases totalling $446.3 million, were behind 46 per cent of office building sales in Perth and the metropolitan area in 2018, while domestic buyers accounted for transactions valued at $529.6 million.
Overall sales of office buildings (above $3 million) in 2018 were valued at $975.95 million, up 18 per cent from $823.15 million in 2017.
The figures also show institutional investors were overwhelmingly the biggest buyers with purchases valued at $855.7 million compared with private investors at $120.3 million.
By country, Singaporean buyers continued to be the dominant foreign group, adding three Perth office towers (Exchange Plaza, 1-5 Havelock Street and 441 Murray Street) to their Australian portfolios in the past 12 months. Zone Q Investments, the Australian arm of Chinese company JiaHe JianAn Group, purchased 55 and 182 St Georges Terrace.
After a strong level of interest in several Perth office assets in 2018, South Korean investors are expected to be among the bidders for CBD building sales in 2019.
Colliers International Head of Investment Services Wayne Lawrence said Perth office yields, at 5.75% to 6.25% for premium-grade buildings and 6.25% to 7.0% for A-grade assets, continued to be a strong investment lure in 2018.
“With softer conditions in their respective domestic markets, offshore buyers are looking for yields in more stable markets like Australia,” Mr Lawrence said.
“For foreign buyers with an Australian mandate, Perth yields are more compelling than Sydney and Melbourne where the office markets have peaked or are close to peaking in terms of rental growth.”
Despite Perth’s high vacancy remaining an influential factor in off-shore investor buying decisions, Mr Lawrence said improving confidence in Perth’s leasing market, and some investor appetite for risk, had seen vacant and high vacancy buildings transact in the past year.
“The investment focus has mostly been on premium and A-grade buildings, with respective vacancies of 4.1 per cent and 17.7 per cent, but Zone Q’s purchase of two B-grade buildings on St Georges Terrace illustrates a willingness to take on vacancy risk and invest in speculative fitouts to rebuild occupancy,” Mr Lawrence said.
Perth’s official office vacancy for West Perth and the CBD is due to be released in February.
The start of the New Year could also be marked by a quieter sale environment, with only HBF’s building at 570 Wellington Street, so far identified as a likely building sale in 2019.
WA Police, who have a consolidation mandate, remain the city’s biggest potential tenant.
Mr Lawrence said global trade tensions and credit availability were key concerns for office market investors but with commitments for new mines in the Pilbara, strengthening conditions in other parts of the resource sector and a healthy infrastructure pipeline, demand for office space was expected to increase.
“Improvements in the leasing environment are generating a good level of optimism about conditions for investment sales in 2019,” he said.