Private Investors Make Hay as Sector Swings in Their Favour

Private investors are dominating commercial office transactions this year as institutional investors retreat, and the market reprices.

to Savills Australia’s latest Spotlight National Office Briefing, private investors accounted for around half of investment volume in the first quarter of the year—about 2.5 times the historical average share.

NSW led private investor activity among the states with 61 per cent of office acquisitions in the quarter, the report said.

Savills said the most significant driver of deal activity in the quarter across the major capitals was the acquisition of secondary office assets for repurposing.

Examples include 82 Sussex Street, Sydney, which sold for $29 million to Sugolena Pty Ltd with plans for a mixed-use redevelopment, and 499-501 Kent Street, Sydney, which was acquired by Icon Oceania for $66 million to be converted into a luxury hotel.

“These emerging trends of asset repositioning and countercyclical investment strategies in Australia’s commercial property sector reflect global trends being played out in capital markets around the world,” Savills Australia national director, capital markets research, Chris Naughtin said.

Naughtin said that the ANREV Investment Intentions Survey 2024 showed investors globally, and particularly in the Asia-Pacific region, were moving from relatively conservative core investment strategies in favour of higher risk-return, value-add and opportunistic investment styles.

The Savill report said Australia’s commercial office market was off to a slow start in 2024 with office investment volumes down 56 per cent compared to a year ago.

▲ Sugolena bought 82 Sussex Street, Sydney, for $29 million. Top image: 24 Walker Street, North Sydney, aquired by Singapore’s Ho Group for $95.5 million.

However, it said, activity was expected to pick up for the remainder of 2024, reflecting ongoing repricing and investors increasingly taking a counter-cyclical approach.

“In a notable example, Quintessential Equity acquired 1 Margaret Street in Sydney’s CBD, with the 18-storey office tower now expected to undergo a $90-million refurbishment,” Savills said.

“The building will become fully electrified, with a renewed focus on amenity and sustainability aimed at securing high-quality tenants.”

Naughtin said pricing would continue to adjust throughout 2024, boosting investor confidence as the year progressed.

Other significant private acquisitions in the quarter include 124 Walker Street in North Sydney, which sold to Singapore’s Ho Group for $95.5 million.

In Brisbane, 309 North Quay Street was snapped up by Taiwanese-backed developer Shayher for $46 million.

“At a national level, private buyers accounted for around half of all investment volumes in the quarter, reflecting a shift toward higher risk-return investment styles in line with predominant global trends,” Naughtin said.

“Institutional investors are generally more cautious and constrained by investment mandates, and often more leveraged.”

▲ Taiwanese-backed developer Shayher snapped up 309 North Quay Street in Brisbane for $46 million. Image: Nearmap

Multi-speed market on brink of recovery

Australia’s commercial office market continued to operate at multiple speeds, with a clear flight to quality and location, the report said.

According to Savills, while softening labour market conditions will weigh on demand for office space in short-term, a limited supply pipeline beyond 2024 is expected to help the market absorb excess supply in coming years.

“Australia is forecast to record the second strongest GDP growth among major advanced economies over the five years to 2029,” Naughtin said.

“Coupled with our sustained population growth, this is a significant tailwinds for the Australian economy in the medium-term, with potential flow-on effects for demand for office space.”