Overseas Investor Demand
Australian CBD office transactions sales activity has been relatively subdued over the first 9 months of 2012 when compared with the very active 2011 calendar year, with Knight Frank data showing investment activity totalling $3.09 billion from 41 transactions (over $10 million) to the end of September. After making up 36% of all CBD transactions in 2011 (and 50% in both Sydney and Melbourne), offshore investors took a slight pause in the middle of this year; acquiring 27% of all CBD sales driven predominantly by Brisbane (29% of deals) and one major sale in Canberra to CIMB Trust. Offshore investment was dampened slightly due to three main factors: the volatility but persistently high $AUD, the global economic uncertainty and undoubtedly the sudden change to the MIT tax regime (increase in withholding tax from 7.5% to 15%), which was announced in May following the Federal Budget.
This sentiment has changed significantly over the past quarter, with overseas investors once again trawling the market for large, prime CBD assets, which have been favoured by offshore groups and there is now evidence that they are prepared to look at more core plus, value-add opportunities also, the most recent being the acquisition of 6 O’Connell Street, Sydney for $105.1 million by MGPA Asia Fund III. We expect investment demand from offshore groups will continue to build, however 2012 also saw domestic listed groups return to acquisition mode, with recent purchases by Investa (IOF) in Perth, Growthpoint in Brisbane and Canberra, DEXUS in Melbourne, Brisbane and Sydney and Commonwealth Property Office Fund (CPA) in Brisbane.
This is expected to be the first of a number of domestic AREIT purchases in the office market across the major capital cities, as the lower cost of capital allows these investors to return to the market and make purchases which are income accretive for their shareholders.