Canberra’s office market pulls in the ‘big fish’ investors

15 March 2016

As published in the Australian Financial Review on 15 March 2016
Author: Nick Lenaghan

255-london-circuit_canberra
Growthpoint Properties Australia bought the DFAT-leased building at 255 London Circuit for $70.25 million last November.

Canberra’s commercial property market is figuring larger on the radar of major investors, with interstate players helping push total transactions to near $540 million last year.

It was Canberra’s strongest year ever for sales of property worth more than $5 million, according to a JLL report.

Interstate players dominated the deals, although the biggest single transaction was the acquisition of the Louisa Lawson building on Cowlishaw Street in Greenway for $225 million by South Korea’s FG Asset Management.

That deal was struck in December. In November, the Werdiger family’s Julliard Group bought another Greenway building on Reed Street for $70 million.

Another large private investor from out of town, Melbourne fund manager Quintessential Equity, has also been busy in the national capital, recently buying a Forrest asset for $32 million.

So too listed property trusts, including Growthpoint Properties Australia, Cromwell Property Group and Centuria Metropolitan REIT, have been big Canberra buyers in the last year.

“This demonstrates a resurgence of confidence amongst investors for Canberra office assets,” said JLL’s Michael Heather. “Canberra is considered a counter-cyclical market to Sydney and Melbourne, offering materially higher risk-adjusted returns.”

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Capital values up 5.9 per cent

Capital values for office property in the national capital Canberra rose 5.9 per cent in 2015. That growth outpaced the previous year’s gain of 2.9 per cent. In 2013, capital values slipped back 1.5 per cent.

Last year the Canberra office market booked net absorption of office space of 18,000sq m. A large portion of that total came courtesy of a reduction in sub-lease vacancy, which fell 59 per cent to 15,600sq m.

The Canberra market has recorded negative net absorption in just three of the years between 1979 and 2014, according to JLL.
Over that same period, Sydney recorded 12 years of negative net absorption and Melbourne nine years.

“Recent transaction evidence has seen average prime equivalent yields compress by 50 basis points to range between 6.5 per cent and 9 per cent,” Mr Heather said. “However, average prime equivalent yields remain 100 basis points higher than the level recorded in 2007 which means the Canberra office market currently appeals to multiple buyer cohorts.”

Canberra-based investors have not been left out in the cold though. Developer Morris Property Group acquired a $20.5 million asset in the city last April, while Molonglo Group bought a $33 million building nearby on Allara Street in November.