[+] High-Net Worth APAC Investors Storm Office Markets

Savvy international investors are swooping in as office prices bottom out and assets sell for below replacement cost across Australia. The office market down under is approaching its trough and it could maintain its low ebb for some time to come, according to Colliers, which is on the charm offensive across Asia-Pacific. Speaking from Guangzhou, Colliers head of Asia markets Harry Bui says Australia offers a compelling value proposition for overseas investors who can buy assets in the safe haven of Australia’s property market. “The strong return-to-work fundamentals, particularly in Hong Kong, Singapore and Australia, the private family offices play in this space more, simply because this is offering a wide spread in terms of the yield (150-200bps compared to debt),” Bui says. “It’s predominantly for transactions between $30 million and $150 million. Beyond that there are few players in that capital market space.” Assets below replacement value Bui was in China last week and Japan before that as part of the Colliers roadshow, which is focusing on high-net-worth individuals and private family offices across Asia. He says Australia offers comparative value and with values approaching their trough, Bui says many assets are transacting for “well below replacement value”. “I sold 191 O’Riordon Street from Dexus to a Vietnamese private family office and that represented a sale at $7500 per square metre. If you were going to build that in today’s market you would be looking at a minimum of $15,000 per square metre,” he says. “At the moment the value proposition for office at the rate that they’re buying is well below replacement costs. If you were going to be building something like this in the current market, you couldn’t do it at the same rate.” ▲ Colliers agent Harry Bui sold 191 O'Riordan Street at Mascot to an offshore investor. Colliers managing director of investment services Matthew Meynell says the office middle markets–assets ranging from $10 million to $150 million–has the highest purchasing capital since 2020 and the total APAC investment volume increased 4 per cent last year. Colliers research shows in 2023 $6.7 billion was invested from APAC into Australia’s property market, led by Japan’s $2.93 billion in transactions. This was followed by Hong Kong and Singapore. But Singaporean investors took the lions share of offshore office investment in 2023. Conversely non-APAC investors left the market in droves with investment volumes dipping 74 per cent. Offshore sales 2023-2024 YTD Address Price Buyer Buyer Origin 309 North Quay, Brisbane $46 million Shayher Group Taiwan 124 Walker Street, North Sydney $95.5 million Ho Group Singapore 965 Bourke Street, Sydney $86.95 million Cambridge RE Partners Singapore 84-88 Bridge Road, Richmond $24 million China 358 Lonsdale Street, Melbourne $56.1 million China 191 O'Riordan Street, Mascot $40.45 million Vietnam 45 Victor Street, Sydney $20 million Undisclosed 11-27 Tavistock Place, Melbourne $28 million Wing Tai Holdings Limited Singapore 406 Collins Street, Melbourne $25.25 million Undisclosed Vietnam 333 Adelaide Street, Brisbane $41.75 million Jimmy Goh Vietnam 54 Miller Street, North Sydney $72.5 million Hong Kong 39 York Street, Sydney $52.5 million Invictus Developments Singapore 144-148 A'Beckett Street, Melbourne $11.85 million India UNSW Kensington $80 million Keppel Corporation Singapore 41 McLaren Street, North Sydney $118 million Keppel Corporation Singapore 50-60 Atchison Street, St Leonards $35 million China 99 Queen Street, Melbourne $27.5 million Aus/China 17-21 Hardner Road, Mt Waverley $19.65 million Aus/China Source: Colliers Research/MSCI Most valuable office assets are already built But Meynell says the most valuable assets in the next few years will be the ones that are already built as the market grapples with supply constraint and construction cost challenges. “The cost of construction is impacting residential as much as it’s impacting commercial. With the drain on resources for government infrastructure work it’s very difficult to find builders to build these projects at an economic rate. “You’ve really got to think about your market rents and what people can afford to pay in your buildings right now, and that ’ s dependent on the asset. But to rebuild that asset is going to cost you 50 per cent more, so your economic rents are going to have to be at least another 50 per cent more expensive and people can’t afford to pay those rates.” Meynell says this will cause greater net absorption and “we will start to see some net effective rental growth from 2025 onwards because the supply is going to be constrained”. “Incentives are relatively high compared to the 10-year averages and we’ll start to see them come back from the end of 2025 into 2026, because the mooted supply won’t come to the market,” he says. Offshore investors hunt core assets Meynell says offshore groups are predominantly seeking B+ Grade to A Grade office assets. “What they’re looking for is buildings where they’ve had considerable infrastructure investment into the building, lower maintenance, strong income. “They’re not the typical value-add buyer. The ideal for our offshore groups is really core or core-plus. There’s some shrewd investors that are identifying this as an opportune time to buy. “A lot of those offshore buyers like to buy from our institutions. And the reason behind that is from a probity point of view, they know the management of those buildings is very thorough from our institutions … [they] know that the health of the building and the warranties of the building are quite strong.” ▲ Singapore-based Invictus Developments acquired 39 York Street from the Bank of China in 2023 for $52.5 million. ‘Billions’ in offshore capital expected to flow Meynell says he expects the offshore capital will continue to flow over the Australian borders with further value yet to be realised in Australia’s office middle market. “There will definitely be more transactions. I think we’re going to stay at 6 o ’ clock (trough) for longer than you would typically expect from a correction point of view, but we’ve got the sticky inflation which is just not moving. “GDP growth looks like it will stay low, and inflation is high. We’re before 6 o’clock, there’s a bit more softening to come, maybe 25 to 30 basis points. “You have to remember the GFC was a liquidity crisis. This is not a liquidity crisis it was an occupancy crisis but we’re starting to see people get back to the office. “We’ve got a cost of construction, a considerable input change in feasibilities, and you’ve got cost of debt. We’ve seen considerable yield compression predicated on the cost of debt. “It’s not a surprise to anyone, we’ve had 13 consecutive interest rate rises, asset values have to soften.” Meynell says as further assets transact it will recalibrate the market and underpin values going forward. Sydney remains the premier destination for capital, with new waves of Asian capital forecast to enter the market. “We believe there’s at least $1 billion or $2 billion [that] will be allocated to the office middle market, with 40 per cent in Sydney and 31 per cent in Melbourne,” Bui says. “Brisbane definitely is starting to become attractive because of the Olympics. A lot of Asian investors are not sure about Perth or the regions yet, so predominantly Sydney and Melbourne.” Meynell says Colliers is anticipating that Brisbane will eat more of the Melbourne market, but Sydney will remain in the pole position for offshore investors. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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