Indications are that the coming year will be another strong one for capital transactions. Photo: Paul Rovere
Australian commercial property sales reached more than $17 billion in 2013, incorporating offices, retail, industrial and hotel assets.
That compared with the 2012 record of $20.6 billion.
Early indications are that 2014 will be another strong year for capital transactions, although investors will find it harder to fulfil their objectives in the crowded market.
According to David Rees, the Australasian head of research and consulting at Jones Lang LaSalle, the sales indicated investors were willing to increase their risk and acquire assets with shorter-weighted average lease expiries (WALEs) or with capital expenditure requirements.
Dr Rees said the sales were also concentrated on assets with core characteristics in non-CBD office markets.
''For 2014, we expect that business confidence will improve and the leasing markets will start to stabilise; 2014 will be the lowest year for supply additions since 2002,'' he said. ''We think office vacancies [across CBD office markets] peaked in late 2013 but vacancies are likely to remain elevated [that is, in low double digits] in many office markets through 2014 and into 2015.
''Vacancy, as usual, will migrate to secondary-grade office stock, so we may see sharper falls in prime-grade vacancy.''
One deal said to be near completion is Google looking to leave the GPT Group-owned Workplace 6 office at Pyrmont for a larger site at the proposed Ribbon development at Darling Harbour.
In August, Grocon and lease-holder Markham Corporation lodged plans with the NSW government to redevelop the Sydney IMAX Retail and Entertainment Complex at Darling Harbour into a $500 million-plus complex.
It was said that UBS Global Asset Management, which has formed a real estate investment and asset management joint venture with Grocon, could buy the IMAX property.
Grocon chief executive Daniel Grollo said UBS Grocon Real Estate was expected to consider participation in several ''substantial investments over the coming months from both within Grocon's existing $2 billion development pipeline and beyond''.
''This includes a number of significant residential developments, including the next stage of Grocon's redevelopment of the Carlton Brewery and its landmark redevelopment of 85 Spring Street, each in Melbourne,'' Mr Grollo said. ''In addition, UBS Grocon Real Estate is separately exploring potential high-quality office investments from Grocon's development pipeline.''
According to Investa's Composite Leading Indicator, an aggregation of selected labour, business, financial and global market indicators suggests CBD absorption will stabilise over the next six months, followed by a stronger lift from mid-2014.
Peter Carstairs, general manager research for Investa Office, said 2013 had been a year of weak office demand across all CBD markets in Australia. But the market was now through the worst of it.
''Our research points to 2014 being a year of recovery, with some CBD markets already starting to gain momentum, while others will take longer to pick up,'' he said.
''Investa expects Sydney and Melbourne to lead the demand recovery, with absorption in these markets improving and expected to be back at trend levels by midyear.''
The strength of global financial markets is expected to underpin the rebound, due to the tenant base in both locations being heavily weighted to the finance sector. Lower interest rates are also now beginning to stimulate the non-mining sector, which will further boost tenant demand.
Direct investment in commercial real estate markets in the Asia-Pacific region in 2014 is also set to exceed this year's transaction volumes, already the strongest year since before the global financial crisis, according to Jones Lang LaSalle.
The firm's outlook predicts direct investment in commercial real estate to reach $130 billion in 2014, outpacing the $120 billion prediction for year-end 2013 and firmly putting the region back to pre-GCF volumes.
Stuart Crow, head of Asia Pacific capital markets at Jones Lang LaSalle, said he expected the momentum seen through 2013 to continue as new sources of global capital increase equity in the region.
''As a result we will see investors move further up the risk curve in search of higher yield, increasing capital inflows into opportunistic and alternative markets such as Vietnam and Indonesia,'' he said.
''As more money becomes available within the region and investors are faced with the ongoing challenge of chasing assets, joint-venture development deals will gain more popularity as an attractive option for foreigners looking to gain access to the region's commercial real estate markets.''