Private investors dominate office acquisitions with counter-cyclical approach, says Savills

Private investors are capitalising on repricing in the office market and dominating commercial office transactions in 2024 to date, as institutional investors largely remain on the sidelines, according to leading agency Savills Australia’s latest Spotlight National Office Briefing. The research reveals that private investors accounted for around half of investment volume in Q1 2024 – around 2.5 times their historical average share.

Reduced competition from institutional investors is also creating ideal conditions for private investors to dominate the market. NSW leads private investor activity amongst the states, representing an overwhelming 61% of office acquisitions in Q1.

Savills says the most significant driver of deal activity in Q1 across the major capitals was the acquisition of secondary office assets for repurposing. 82 Sussex Street, Sydney sold for $29 million to Sugolena Pty Ltd with plans for a mixed-use redevelopment. 499-501 Kent Street, Sydney was snapped up by Icon Oceania for $66 million and is set for conversion into a luxury hotel.

“These emerging trends of asset repositioning and countercyclical investment strategies in Australia’s commercial property sector reflect global trends being played out in capital markets around the world,” said Chris Naughtin, National Director – Capital Markets Research at Savills Australia.

Naughtin noted that the ANREV Investment Intentions Survey 2024 shows investors globally, and particularly in the Asia-Pacific region, are moving away from relatively conservative core investment strategies in favour of higher risk-return value add and opportunistic investment styles.

Opportunistic investors take counter-cyclical approach to market

Australia’s commercial office market was off to a slow start in Q1 2024 with office investment volumes down 56% compared to a year ago. However, activity is expected to pick up for the remainder of 2024 reflecting ongoing repricing and investors increasing taking  a counter-cyclical approach.

In a notable example, Quintessential Equity acquired 1 Margaret Street in Sydney’s CBD, with the 18-storey office tower now expected to undergo a $90 million refurbishment. The building will become fully electrified, with a renewed focus on amenity and sustainability aimed at securing high-quality tenants.

Pricing will continue to adjust throughout 2024, boosting investor confidence as the year progresses,” said Mr. Naughtin.

Private investors dominate in NSW

According to Savills’ Office Briefing, private buyers – typically smaller, more agile and with greater liquidity – are benefitting from reduced competition from institutional investors. Private investors accounted for 52% of total investment activity in Q1, with NSW leading the nation with 61% of office sales to private investors.

Significant private acquisitions in Q1 include 124 Walker Street in North Sydney, which sold to Singapore’s Ho Group for $95.5 million as well as the 82 Sussex Street sale to Sugolena for $29 million. In Brisbane, 309 North Quay Street was snapped up by Taiwanese-backed developer Shayher for $46 million.

“At a national level, private buyers accounted for around half of all investment volumes in Q1, reflecting a shift toward higher risk-return investment styles in line with predominant global trends. Institutional investors are generally more cautious and constrained by investment mandates, and often more leveraged,” said Mr. Naughtin.

Multi-speed office market on brink of recovery

Australia’s commercial office market continues to operate at multiple speeds, with a clear flight to quality and location.

According to Savills, while softening labour market conditions will weigh on demand for office space in short-term, a limited supply pipeline beyond 2024 is expected to help the market absorb excess supply in coming years.

“Australia is forecast to record the second strongest GDP growth among major advanced economies over the five years to 2029. Coupled with our sustained population growth, this is a significant tailwind for the Australian economy in the medium-term, with potential flow on effects for demand for office space,” said Mr. Naughtin.