As Australian commercial investment continues to grow, it appears a surge in overseas confidence and the office sector is in the pipeline for 2022, according to Knight Frank’s Head of Capital Markets expert, Justin Bond.
So far this year $4.9 billion has been traded, with a further $6.9 billion worth of stock currently on the market across the six major cities of Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra. Mr. Bond said with the current momentum, total office investment volumes especially, are likely to exceed the 2021 total of $16.1 billion across these cities in 2022.
“We are seeing increased levels of investment opportunities coming to the market as borders open and confidence returns to the occupier market,” he said. "We expect volumes to reach $20 billion in 2022, up 25 per cent from last year, but below the record level of $25 billion reached before the pandemic in 2019.”
Mr. Bond, who has recently returned from a trip to Europe and the UK, said overseas capital remained a key driver of the Australian office market. “There is sustained demand from the US, in particular North America, and Singaporean buyers, and rising appetite from major German and Korean institutions. This reflects confidence in the near-term outlook for occupier market recovery in Australia and the longer-term prospects for Australian cities supported by a robust labour market and a large pipeline of infrastructure investment to be rolled out over the next decade.”
Australia offers tremendous fundamentals for foreign investors - political stability, low unemployment, strong corporate governance, market liquidity and favourable returns comparative to other global destinations. The uncertainty in Europe reinforces the desire of many European investors to increase allocations to foreign real estate investments.
“Asia Pacific will continue to attract European capital with increased weightings towards Australia, Japan, Korea and Singapore. However, we feel Australia will be well positioned to attract most of the foreign capital.”
Mr. Bond said a common theme amongst investors was the genuine desire to invest in energy efficient assets or partner with Australian managers who are aligned to the implementation of ESG principles.
“As ESG becomes more pertinent for investors, we think that Australia will remain highly favoured due to our highly transparent and globally recognised ratings systems and the breadth of core assets meeting rigorous sustainability criteria,” he said.
In conclusion, Melbourne is expected to see a very strong year, with the most stock on market of any city, at $3.4 billion. This has been driven up by the on-market sale of the Southern Cross Towers complex and 1000 La Trobe. Brisbane also continues to be one of the most active Australian markets, with current on market volumes approaching $1 billion. It is expected that increased debt costs will drive demand for greater returns and therefore influence investor appetite for investments in this city. Perth is also set to benefit, with the reopening of state borders. The city is thriving from a strong economy in Western Australia and with just over $400 million of stock on the market, the office market is greatly supported by rising demand for space from the mining sector.