Above average returns for Australian office assets 

Returns generated by Australian office assets last year were significantly above the historical benchmark, according to a new report by global property services firm, JLL.

JLL recorded $14.46 billion in office transactions in 2016, the Australian Office Investment Review and Outlook 2017 reveals.

This was the third highest level on record and almost double the pre-financial crisis level of $7.76 billion in 2007.

“We are currently in the midst of an unprecedented liquidity cycle, which is being expressed both by high levels of transaction volumes and the number of bidders on major assets,” says JLL’s head of office investments in Australia, Rob Sewell.

“Total office volumes last year were curtailed by a lack of available product,” Sewell says, adding that the number of under-bidders on campaigns in 2016 across geographies were at “elevated levels”.

JLL’s analysis points to “another good year of returns” within the Australian office market in 2017, Sewell says.

JLL’s head of international investments in Australia, Simon Storry, says Australia’s office sector remains “a beneficiary of the great portfolio tilt to real estate and the Asia Pacific region”.

Offshore investors accounted for 42 per cent of total office transactions in 2016 at $6.19 billion, dominated by Chinese, Singaporean and US investors.

“Our review of the spread between target and current allocations by offshore investors shows potential sources of capital in 2017 include South Korea, Hong Kong, Singapore and Germany,” Storry explains.

JLL classifies Sydney and Melbourne as the high growth markets. Asset pricing reflects the strong rental growth outlook, with prime net effective rents projected to rise by 34.9 per cent in the Sydney CBD and by 18.7 per cent in the Melbourne CBD from 2017 to 2019.

In comparison, Brisbane and Perth offer counter-cyclical opportunities.