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With buyers being squeezed out of CBD markets due to extreme demand, there is a mismatch between the lack of supply of North Shore investment stock and the significant existing and emerging demand for these buildings
SYDNEY, 18 September, 2013 – The extreme appetite for prime office stock in Sydney’s CBD and core markets is squeezing investors out to suburban markets including the North Shore, according to the latest report by Jones Lang LaSalle.
Jones Lang LaSalle’s September report, titled Sydney North Shore Office Investment Market Overview, examines the trends that are likely to emerge in Sydney’s suburban office markets over the next 12 months.
The report notes that much has been written in the past 18 to 24 months of the recent global investment appetite for Australia’s relatively high-yielding commercial property assets – largely, but not entirely, a function of an official interest rate that has been, and remains, 200-250 basis points higher than those in most of the major advanced economies, which produces a desirable yield spread largely unachievable elsewhere.
The report shows that although transaction volumes are down in Sydney’s suburban markets as compared with the immediate (2010-2012) post-GFC period, this has been due to the relative lack of appetite for secondary and suburban stock (see Figure 2).
According to Jones Lang LaSalle’s Manager, Sales and Investments Ben Larsson, these transaction volumes show only part of the story.
“Sydney’s investor appetite is largely due to record-low interest rates and high commercial property yields. Investor mandates from sovereign wealth funds, multi-billion dollar pension funds and global property investment managers seek CBD-based core and near-new investment stock – however there is very little available stock.”
Mr Larsson said he anticipates North Sydney, being the most prominent near-CBD market, as coming under increased focus from investors unable to purchase in the Sydney CBD.
“A re-energised buyer – the offshore investor – competing with more established suburban investors has led to a degree of frustration at the current relative lack of supply on Sydney’s North Shore,” said Mr Larsson.
Jones Lang LaSalle’s Director, Sales and Investments Robert Harris said added to this lack of supply, vendors on the North Shore are in many cases reluctant to sell.
“Given the current relatively high yields for suburban assets, compared with the returns from prime stock and alternative asset classes, vendors are reluctant to market existing suburban assets – where and how would they replace this income?”
According to Mr Harris, due to the significant investor demand for CBD and core products, there formerly had been a relative dearth of enquiry for well-located B-Grade buildings in established suburban locations. However, this has changed and there is now significant investor demand for suburban investments – both from A and B grade.
“Our view is that this situation creates a buying opportunity for those able to identify and secure assets in suburban markets.”
Mr Harris said it is their belief that this trend will be reversed in the near and medium term by the greater numbers of buyers starting to look to the established suburban markets for stock after being competed out of the tightly held CBD market.
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