Sydney a world-beater for office yields

Sydney might be Australia’s tightest office market, but on the world stage its yields are as good as it gets, according to new research.

A study of 54 cities across Asia, Europe, the United States and Australia shows that among the 11 gateway cities globally, Sydney has the most attractive market yields, averaging 5.62%.

Los Angeles West and San Francisco were the only other gateway cities to offer yields above 4.5% for A-grade office assets, Savills’ World Office Yield Spectrum shows, bolstering Sydney’s status as a prime destination for foreign capital.

Commercial market: US hits back in Australian property battle

Hong Kong presented the lowest yields at 2.71%, while Tokyo was at 3.4%, London at 3.48%, Paris at 3.51% and New York at 4.15%.

The report found yields among the gateway cities had firmed by an average of 32 basis points since December 2014, with Sydney leading the way at 100 basis points – more than double the drop in Hong Kong over the same period.

Sydney’s A-grade office yields are proving attractive to overseas investors.

It comes after realcommercial.com.au and Real Capital Analytics data showed the United States had re-emerged as a major player in Australia’s commercial property market, eclipsing China for investment so far in 2016 and proving Australia’s attractiveness to investors globally.

Overseas buyers pushed Australia to a record $31.1 billion worth of commercial deals in the last financial year, up almost 8% on the previous year.

Australia’s other capital cities, while not considered gateway cities, recorded even more enticing yields, with Melbourne at 6%, Brisbane at 6.86%, Adelaide at 7.91% and Perth at 7.99%.

Only Canberra shaded Sydney, with A-grade office yields averaging 5.56%.

In the report, Savills Australia head of research Tony Crabb predicts Australia’s yields will continue to tighten.