Demand driving strong prices for CBD offices

Investors are offering hefty prices in a bid to secure quality CBD properties in Sydney and Melbourne.

At the same time, a report from global property group Knight Frank forecasts increasing demand next year for prime offices around the globe.

Knight Frank Managing Director, Capital Markets Australia, James Parry said demand was outstripping supply for some properties in Sydney and Melbourne.

“Yield compression is being seen in key gateway cities around the world including London, New York and Singapore,” he said.

“In Australia, this is being mirrored in Sydney and Melbourne CBDs, where there is a continuing strong weight of money trying to invest against a limited volume of assets being offered to the market. In both these markets, there has been an increase in offers for quality CBD properties that are well in excess of book values.”

Mr Parry said there were still good buying opportunities in Australian markets.

“The remaining domestic CBD markets, alongside the Sydney and Melbourne non-CBD markets, have far less investor interest, particularly from the off-shore buyers, and it is these markets where we can still see better value buying opportunities,” he said.

Knight Frank’s Global Investment report 2013/14 shows Hong Kong has the world’s most expensive office space, valued at $66,078 USD per square metre. Singapore comes in next at $31,271 USD. Sydney is home to Australia’s most expensive office space at $10,696 USD per square metre.

“Looking forward to 2014, the outlook for global property investment is more positive than 12 months ago,” the report says.

“Indeed, if anything, demand for prime commercial property in the world’s major cities is likely to continue to strengthen over the coming year, as investors seek greater exposure to the global economic recovery.”

The report shows Sydney’s biggest investment deal so far this year was Cromwell Group’s $405 million acquisition of seven office assets from the NSW government.

The report says an improving economic backdrop should help stimulate activity.

“With development yet to accelerate significantly, rental growth for prime assets should begin to emerge more widely – helping to ensure a strong year for global property.”