‘Post-recession rush’ predicted for Australia’s commercial property

Overseas investors are forecasted to up their interest in Australia’s office sector, particularly that in Melbourne, while a recovery in white-collar employment should enhance demand for office space in Brisbane’s CBD, which is already seeing a gradual improvement in the occupancy rate.

Colliers is also predicting a return of listed REITs, while the asset class to watch outside of office is the build-to-rent (BTR) sector, which is growing in prominence on the back of changing office-occupier dynamics.

Brisbane

Looking at Australia’s capital cities individually, Colliers tipped that investment activity could remain subdued in Brisbane as the supply of new developments remains limited until 2025.

“We estimate there has been a nearly 80 per cent drop in leasing activity in the Brisbane CBD office market, which saw about 35,000 sq m in leasing transactions in 2020 compared to 160,000 sq m in 2019,” Colliers national directors of capital markets Jason Lynch and Don Mackenzie said.

But Brisbane CBD’s office occupancy rate has continued to gradually improve, rising above 60 per cent, while increases in tenant incentives have caused a reduction of net effective rents to 2018 levels when the vacancy rate was above 14.5 per cent. 

“Job creation in sectors such as public administration and safety, and professional, scientific and technical services, are expected to drive a recovery in white-collar employment and base office demand in the Brisbane CBD,” the pair said.

The experts also touted an increase in investment activity during H1 2021, once domestic borders have reopened, following an estimated reduction of nearly 97 per cent last year – from the $2.9 billion transacted in 2019 to the $103.2 million in sales transacted in 2020.

Melbourne

Melbourne saw an “extremely positive” fourth quarter, as Victoria emerged from lockdown and interstate borders reopened.

According to Colliers, this year’s office transactions have already confirmed the resilience of Melbourne’s office market, with minimal distress evident and prices generally trading at book values, which broadly speaking held or decreased 5-10 per cent between March and December for at-risk assets.

As the year draws to a close and confidence returns, investors are said to be poised for an active 2021.

“We expect to see a deeper buyer pool for the Melbourne office sector, with continued interest from offshore investors as well as the return of listed REITs, whose share prices precluded them from much activity in 2020,” said Collier’s Victoria-based managing director, John Marasco, director of capital markets Trent Preece and associate director of capital markets Anna Cavar.

“We anticipate further selldowns within the prime grade space, as some larger landlords continue to reduce leasing risk exposure,” the experts added.

Sydney

Sydney, too, is expected to boast an increase in demand for office assets, with core grade assets expected to garner the most attention from investors and landlords.

As most major corporates plan to move their employees back to the office, Collier’s predicted that the return to the office environment, which is likely to occur during Q1 2021, will create greater confidence and certainty moving forward, and provide buoyancy to the market.

Collier’s also highlighted several “to-watch deals”, including the sale of Macquarie Park at 1–5 Thomas Holt Drive, Sydney, for $295 million to CapitaLand/Ascendas REIT; the sale of a 50 per cent stake in Grosvenor Place, 225 George Street, Sydney, for $925 million to CIC/Mirvac (co-owner); and the sale of a 25 per cent stake in GPT/GMT, 1 Farrer Place, Sydney, for $584.6 million to APPF Lendlease (co-owner).