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JLL’s preliminary figures as at Q3 show investment volumes across Australia’s commercial property market continue to track lower than the record $33 billion transacted in 2015. However, recent sales campaigns have attracted competitive bids
Although JLL's preliminary figures for commercial property investment volumes at the Q3 mark reveal lower volumes than the record years of 2015 and 2014, it is a symptom of less product as opposed to less capital targeting Australian commercial real estate.
The firm's preliminary figures show commercial property markets recorded $18.1 billion of sales (above $5m) across the office, retail and industrial sectors over the first nine months of 2016. This figure is lower than the $22.4 billion of transactions finalised in the first nine months of 2015. National investment volumes over the 2014 and 2015 calendar year reached record highs, with $31 billion recorded in 2014 and $33 billion recorded in 2015.
JLL's Head of Office Investments – Australia, Rob Sewell said the lower transaction volumes this year are not a symptom of reduced interest – investor demand remains strong.
This was evidenced by the recent sale of a boutique office building - 28 O'Connell Street in Sydney. The level of unsatisfied capital from this process equates to about $2.7 billion for good quality and well-positioned B Grade assets.
"We witnessed an unprecedented level of competition for this boutique B-grade building from domestic and international investors, resulting in 30 written offers being received. This sale is understood to have set a very strong pricing benchmark for the Sydney CBD. This sale process demonstrates that investors are willing to assess a variety of asset grades to buy in the current market," said Mr Sewell.
When product becomes available, JLL has recorded high levels of investor interest, while the number of bids is higher than what was received on comparable campaigns in 2007.
Mr Sewell said a number of key factors were contributing to investment activity levels for the final quarter of 2016 and into 2017.
"Tightening vacancy and positive effective rental growth provides the catalyst for the next asset creation cycle in Sydney, Melbourne and a number of suburban office markets.
"New development activity will generate fund-through opportunities for investors to gain exposure to core income producing assets and support increased investment activity in 2017," said Mr Sewell.
JLL's preliminary investment volume figures showed from a quarterly perspective, $7.0 billion of transactions across the office, retail and industrial sectors were recorded in the 3 month period for Q3 2016, compared to $9.6 billion in the 3 month period for Q3 2015.
Large market transactions negotiated by JLL in the third quarter included:
Mr Sewell said foreign investor interest for commercial real estate assets in Australia continues to track at record levels.
"Foreign investment into Australia accounted for 42% of total transactions in 2016 (as at Q316). This is around double the long term average.
"The theme of new entrants seeking an allocation to Australian commercial property market remains relevant.
"We are working with multiple capital sources from Asia and North America to support their due diligence on Australia as an investment destination. These investors will be working on their investment recommendations over the balance of 2016 and be new sources of capital in 2017 and 2018," said Mr Sewell.
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