Office investments in Australia surpass $19b for the first time

Is it time to explore office investment markets outside of Sydney and Melbourne? Counter-cyclical investors are becoming more active in Brisbane, Adelaide, Perth and Canberra.

February 15, 2019

According to JLL’s annual Australian Office Investment Review & Outlook 2019 the value proposition in Brisbane, Adelaide, Perth and Canberra is becoming more pronounced as prime grade yield spreads to Sydney and Melbourne and the risk-free rate are wider than long-term benchmarks.

JLL analysis shows that the Sydney and Melbourne office markets represent 78% ($226 billion) of Australia’s office market investable universe, valued at $288 billion in total.

However, JLL’s Head of Office Investments – Australia Rob Sewell predicts: “We believe 2019 will bring a more diverse pool of overseas investors into Australia and they will be looking for opportunities beyond Sydney and Melbourne. 

“While Brisbane is already on the international radar, we will see more cross-border investment into Perth, Adelaide and Canberra.  The level of interest in these geographies will depend on the availability of product to meet the investment mandates of overseas investors.

“Tangible signs of a leasing market recovery in Brisbane and Perth has increased the prevalence of counter-cyclical investors,” said Mr Sewell.

The JLL Report states that while investment volumes in Australia hit an all-time record in 2018 at $19.53 billion, the result was heavily influenced by Oxford Properties acquiring the IOF portfolio at $3.4 billion.

Mr Sewell said, “We are expecting office transaction volumes to be 10% to 20% lower in 2019. 

“We expect the Sydney and Melbourne markets to be development led opportunities.  The emerging development pipeline in some office markets will generate fund-through or take out opportunities for core capital sources.  This will be the primary source of core long-dated lease product across Sydney and Melbourne in 2019.

“Offshore investors continued to play a big part in Australia’s office market in 2018, accounting for 48.4% of all transactions by value, or $9.46 billion.  The top three most active investors were from Canada, USA and Singapore.  Offshore investors will remain active in 2019 and Japanese investors are becoming more active cross-border investors.

“Volatility in the Australian dollar could stimulate investment activity, as the price point becomes more favourable for certain capital sources.  A further correction in the AUD against the USD will influence the decision-making process of USD denominated funds.

“The overall investor view on Australia is much more positive in 2019 than late 2018.  All the speculation at the end of last year around interest rate upward movement has gone.

“Many of the global funds are seeing Australian Office as more attractive due to a cheaper dollar, more attractive than Europe where pricing has jumped due to the demand last year plus the UK doesn’t seem to be an option.

“Australia is well placed from the lack of deal flow in most of the Asian cities so well capitalised funds see Australia as a place they can grow.

“Income growth is still a key positive for all Australian office markets.  Capital is not wanting to break price records but is willing to engage with vendors who wish to sell at current market pricing,” said Mr Sewell.

JLL’s Head of Research – Australia Andrew Ballantyne said the value proposition remains strong in Sydney and Melbourne for 2019.

“Strong rental growth across Sydney and Melbourne office markets over 2015 to 2018 and the potential for positive net effective rental growth over 2019 and 2020 leads to the prospect of net effective rental reversion between 15% and 35% for leases expiring in 2020.

“Investors have become confident in under-writing the Sydney and Melbourne rental growth story. Furthermore, we believe that Parramatta and the Melbourne Fringe have become markets with the required scale for institutional investment. The Parramatta office market will increase to over one million square metres by 2023.

“Historically, movements in office market vacancy are more sensitive to supply than demand. Tougher lending criteria and the application of more stringent loan-to-cost ratios have resulted in healthy levels of pre-commitment to de-risk the development pipeline.

“The supply-side of the equation is well managed and there is limited risk of over-supply or a rapid escalation in vacancy rates.  New development is targeted to markets where prime grade vacancy is tight – Parramatta, North Sydney and Sydney Fringe.

“Commercial property markets across the world are generally considered to be late cycle. The Australian office sector is in a similar position, but all Australian office markets have the potential to absorb a partial reversion in the risk-free rate. Office market vacancy rates – especially for prime grade assets – are low and rents are moving higher across Sydney and Melbourne office markets.

“Income growth will be the primary driver of returns over the medium-term,” concluded Mr Ballantyne.

Key highlights - Office Investment Review and Outlook 2019

  • Transaction levels:  Transaction volumes surpassed $19 billion in 2018 for the first time on record. 
  • Volumes of $19.53 billion across Australia’s office market nationally. JLL expects volumes to be 10%-20% lower in 2019.
  • Pricing: Pricing is reflective of the rental growth outlook.  Prime yields across most Sydney and Melbourne office markets have reached new benchmarks in this cycle. 
  • Investor sentiment and 2019 strategies:  Counter-cyclical investment strategies becoming more prevalent.  Volatility in the Australian dollar could stimulate investment activity.  A further correction in the AUD against the USD will influence the decision-making process of USD denominated funds.
  • Key buyers and sellers:  Offshore divestment hit a record high.  Offshore capital sources were active on both the buy and sell side of transactions, acquiring $9.46 billion of office assets in 2018 and divesting $6.57 billion – an all-time record high.
  • Supply and demand:  New development activity is pre-commitment led and JLL has observed an inverse relationship between prime grade vacancy and the development pipeline. 

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About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 90,000 as of December 31, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit

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