Supply Shrinks for CBD Office Buyers
Figures show that the total value of CBD offices sold in the first quarter of this year was nearly a third down on the same time last year.
This year’s figures were also a massive 47.8 per cent lower than during the corresponding period three years ago.
An increase in the number of institutional owners, limited alternative property investment options and an improved leasing market are said to be contributing to the shortage.
Research from Colliers International shows sales of CBD office buildings worth more than $10 million totalled $64.25 million in the first quarter this year, 31.3 per cent lower than at the same time last year when $93.5 million worth of properties sold. This compared with $123 million in 2004.
In 2005, ING’s sale of its share of the QV office development to Grocon contributed to $325 million in sales for that quarter. Major CBD sales this year include 50 Queen Street ($31 million), 488 Bourke Street ($18.5 million) and 478 Bourke Street ($14.75 million).
Colliers International research analyst Amita Mehrotra said the first quarter of each year was traditionally slower than the final quarter, which is usually the biggest for sales.
But Jones Lang LaSalle national investments director James Kaufman said with the exception of some institutions selling assets from one fund to another, CBD building owners were not in the mood to sell.
"There is overwhelming demand to buy quality assets," he said. "At the same time, everyone believes the market is going to continue to grow.
"Therefore, why would you sell an income-producing asset when your perception is rent will go up, yields will contract further and the value of the building will go up?"
Mr Kaufman said the mood was not likely to change unless interest rates rose, unemployment increased, or there was a downturn in the sharemarket.
But he predicted the lack of quality investment stock could spur the next wave of speculative development.
"I think the market is going to change and it will be more about building product," he said.
Savills investment strategy director Tony Crabb said first-quarter CBD office sales usually accounted for just 10 per cent of total sales in any year. Often, the early results were from sales overhanging from the previous year, he said.
"If you don’t meet the December 30 deadline, you can forget January and it’s really February before people get back, work starts and you complete the deal."
He said the third and final quarters of each year were busier than the start of the year, as some building owners preferred to sell property during that period and delay paying capital gains tax for another year. "This is part of the usual ebb."
