OFFICE MIDDLE MARKETS - FIRST HALF REPORT 2020 EXPERTS IN OFFICE INVESTMENTS - Colliers International
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OFFICE MIDDLE MARKETS FIRST HALF REPORT 2020 EXPERTS IN OFFICE INVESTMENTS
The fundamentals of the Office Middle Markets have significantly shifted across the First
Half of 2020, as the immediate effects of COVID-19 quickly took hold of Australia. Despite
Colliers International this, Australia’s Office Middle Markets remained resilient as office assets saw their capital
values increase and yields tighten.
Office Middle Markets There were 35 transactions, totalling $1.24 billion in the Office Middle Markets space during the first six months of the year; a
53% decrease in transactions and a 44% drop in sales volumes over the same period in 2019. However, even with a notable
reduction in sales volumes across the market, both CBD and Metro assets saw an increase in the average purchase price, this
was particularly evident in the Metro market where the average price of an asset increase by 36% from $23,308,238 (2019) to
$31,743,889 (2020).
Over the past 18 months, we’ve cemented our position as market leaders in the Office Middle
Of the 35 transactions, 27 took place in the Metro Markets totalling $857.1 million, whilst 8 assets transacted across Australia’s
Markets by maintaining a 39% market share nationally. We have collated and analysed every CBD at just $387.6 million, interestingly Adelaide accounted for 30% of this total.
transaction that has taken place, and have collaborated to develop invaluable insights, allowing
us to become the trusted advisor for many onshore and offshore REIT’s, Funds and Family Globally, office transactions were down 38% in the first half of 2020 when compared to the first half of 2019 with the impacts
being most felt in the Asia Pacific region where deal volumes are down 55% over the same period. This part of the world has
Office clients. been more severely impacted by COVID-19 as Asia was the first region to be hit by the pandemic and countries within it were the
first to go into lockdown and as a result, transaction activity started to slow in 2020 when compared to the Americas and EMEA.
Throughout the challenges of 2020, we have acted quickly to seize opportunities for our clients,
Local Australian sales that were transacted by offshore groups were down from 14 to 4 (71%) which can be attributed to the
working with you to embrace changes in your business and help you achieve profitable outcomes effects of COVID-19 but it is worth noting that the 4 offshore purchasers all came from Asia with the average sale price increasing
for your immediate and future investment needs. from $48 million in the first half of 2019 to $71.6 million in 2020.
There has been one constant in the first half of 2020 and that
Colliers International identify the Office ‘Middle Markets’ as commercial assets valued between is the unprecedented levels of enquiry and capital still looking
MATTHEW MEYNELL
$20m-100m. In markets such as Adelaide, Brisbane and Canberra, this threshold begins at for office assets, however the flight to quality thematic is
Head of Investment Services
beginning to play out as investors chase strong covenants
$10m, whilst in the Sydney and Melbourne CBD we classify assets upwards of $20m. and forensically investigate tenant solvency and assets with
Australia
+61 413 988 878
long WALEs.
Matthew.Meynell@colliers.com
Turning Insight We know the Market
into Opportunity Vendor Divestment Analysis: Purchaser Acquisition Analysis: High-Net Worth Investor
or Family Office
Market Overview First Half 2020: HNW/Family Office Syndicates
Institutions
13, 36% 16, 46% Developers
By recording and analysing every office transaction across Australia
with a price point between $10m-$100m, we guarantee our clients that
our market knowledge is second to none. The data we have collected Syndicate
has given us invaluable insights into movement in the market and
helped us to service our clients better. HNW/ Corporates
Institutions Family
Owner Occupier
The following information is based on sales 8, 22% Office
6, 17%
between $10m-$100m conducted by all agencies Listed Fund
in H1 2020. For a full market overview contact Unlisted Fund
your local expert. Syndicates Developers
8, 22% 4, 11%
Transactions Sales Volume Average Initial Yield (%) Capital Value ($/sqm)
TRANSACTION DATA
ALL H1 2020 SALES $10M-$100M*
NSW
12 8 4 0 2 4 6 8
TOTAL CBD METRO Transactions 11
11 Sales Volume $385,470,000 4.24%
Transactions 35 8 27 $385,470,000 Average Initial Yield 4.24% $8,165/sqm
Sales Volume $1,244,690,000 $387,605,000 $857,085,000 $350M $250M $150M $50M
Total NLA 47,211
$2,000 $4,000 $6,000 $8,000
Capital Value $8,165
Average Initial Yield 5.69% 5.73% 5.67%
Average Capital Value $6,755/sqm $6,792/sqm $6,738/sqm VIC
12 8 4 0 2 4 6 8
Transactions 6
Average Sale Price $35,562,571 $48,450,625 $31,743,889 6 Sales Volume $248,090,000 4.86%
$248,090,000 Average Initial Yield 4.86% $6,956/sqm
Total NLA Transacted 184,268 57,069 127,199
Total NLA 35,667
Average WALE (Yrs) 5.43 4.08 6.28 $350M $250M $150M $50M
Capital Value $6,956
$2,000 $4,000 $6,000 $8,000
QLD
12 8 4 0 2 4 6 8
TRANSACTIONS TO DOMESTIC PURCHASERS Transactions 8
8 Sales Volume $412,905,000 7.29%
Transactions 31 $412,905,000 Average Initial Yield 7.29% $7,422/sqm
Total NLA 55,634
Sales Volume $958,610,000 $350M $250M $150M $50M $2,000 $4,000 $6,000 $8,000
Capital Value $7,422
Average Sale Price $30,922,903 COLLIERS INTERNATIONAL
SA
SOLD 12 8 4 0 2 4 6 8
Transactions 8
50%
8 Sales Volume $144,425,000 6.90%
TRANSACTIONS TO OFFSHORE PURCHASERS $144,425,000 Average Initial Yield 6.90% $3,817/sqm
Transactions 4 Total NLA 37,835
$350M $250M $150M $50M $2,000 $4,000 $6,000 $8,000
Capital Value $3,817
Sales Volume $386,100,000 OF TRANSACTIONS
TO OFFSHORE ACT
Average Sale Price $71,520,000 12 8 4 0 2 4 6 8
Transactions 2
PURCHASERS 2 Sales Volume $53,800,000 6.28%
Country of Purchasers: $53,800,000 $6,792/sqm
Average Initial Yield 6.28%
Total NLA 7,921
$350M $250M $150M $50M $2,000 $4,000 $6,000 $8,000
Capital Value $6,792
New South Wales: Sydney CBD SOLD BY COLLIERS INTERNATIONAL:
191-199 THOMAS STREET, SYDNEY
First Half Review 2020: Date: March 2020
Price $80,080,000
Sydney CBD property is a case of two different markets - the occupational market and the investment
Vendor: Community and Public Sector Union
market. The occupational market is now tipping in favour of the tenant with rental levels falling and
reliable income streams yet to stabilise. The investment market however is still essentially in favour of Purchaser: SLLZ Development and Holdings P/L
the owners as demand still far outweighs supply. Buyers are scrutinising sale opportunities in far more Yield: 3.44%
detail and assets with guaranteed income streams are now relatively more valuable.
NLA: 4,797sqm
There has been one major transaction in the first half 2020 being 191 Thomas St Haymarket, transacted $/sqm: $16,694
by Colliers International. Over the same period in 2019, the Sydney CBD saw 5 sales transact.
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
CBD 1 $80,080,000 3.44% 4,797 $16,694 The occupational market is seeing:
• Some tenants seeking rent relief.
• Net market rents have decreased due to incentives increasing by between 5-10%.
Transactions H1 2019 • Vacancy for the total market has increased from approx. 3.6% pre-COVID to circa 7%, as approx. 3% of tenants have closed
their businesses and 0.36% of tenants have placed space on to the sublease market.
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
• Vacancy is now a little below historic equilibrium which reflects a balanced market for both landlords and tenants.
CBD 5 $181,300,000 3.81% 11,411 $15,888 • The office projects under construction may push vacancy above equilibrium.
The investment market is seeing:
• Minimal stock available however once the effects of COVID-19 are more easily visible and owners are able to identify net
cashflows more precisely, then some will choose to sell and buyers will have more confidence in bidding.
Key trends influencing the market in 2020: • Some investors are telling us that they will bid for assets on lower yields because the cost of capital has been decreasing.
• Capital values appear to be holding. Despite net returns being less than pre-COVID the anticipated lower yields may
counterbalance to hold capital values.
01. Limited availability of stock • An example is the only Sydney CBD property to have exchanged contracts in H1 2020 being 191 Thomas Street Haymarket,
Up until COVID-19, there was a shortage of investment stock as owners would not an 8-level office building fully leased and sold by Colliers International during the COVID-19 period. Sold at a record yield of
sell because Sydney CBD assets were providing greater returns than alternative 3.44% and a capital value of $16,694 psm NLA.
investments. We still expect these returns to remain competitive despite COVID-19.
What does this mean for Vendors/Purchasers?
As owners resolve rental agreements with tenants and can ascertain predictable
rental cashflows some will consider divestment. The assets that are presently in Vendors need to work on stabilising cashflows and investigating whether their properties have additional redevelopment value. As
greatest demand are those with risk free cashflows, however buyers will look again the leasing market is changing, owners also need to ensure that their assets will compete effectively as tenants’ requirements are
at “value-add” assets as the leasing market fundamentals improve and cashflows rapidly changing. Investors and developers need to undertake more detailed due diligence on the tenant covenants and understand
stabilise. where the opportunities exist as a result of the changes to the Central Sydney Planning Strategy.
02. Strong onshore and offshore buyer demand Has this impacted the placement of Offshore Capital?
Whilst the total number of buyers has fallen since pre-COVID, there is still a relativity high number of buyers looking to acquire. COVID-19 has resulted in an increase in Asian capital as previously mentioned and whilst Asian based buyers are unable to inspect
properties for sale, we have adapted quickly to provide virtual inspections via video and Mandarin speaking sales operatives who
There are three driving factors behind the continuing demand for properties: enormous capital available; the recognition that can walk and talk a buyer through the property.
property investment is for the long term; and the need by some buyers to place their capital in a “safe haven”. As an example of
available capital, following the exchange of contracts for 191 Thomas Street, Sydney, the 12 underbidders represented available
capital of $960M. Investors recognise that whilst COVID-19 is detrimentally affecting cashflows, the effects will be relatively short Future Predictions Sydney CBD Investment Services Team
term. Offshore buyers, particularly from China, Hong Kong, Singapore and Macau, seeking assets as a “safe haven” have shown
even greater interest in the Sydney CBD since COVID-19 due to issues facing some in their own countries. Despite the impact of COVID-19 on the
occupational market, the level of investment
demand is such that it still outweighs supply
03. The Central Sydney Planning Strategy (on exhibition) is enhancing many site values and as more assets are put up for sale in
2020 we see capital values holding if there
The Sydney City Council has spent four years rewriting the development guidelines proposed for the Sydney CBD which will is further yield compression.
now favour office and hotel developments ahead of residential developments, and hence the site values of most properties have
changed. The CSPS includes areas identified as “Tower Clusters” within which owners that have or can amalgamate a site in STEAM LEUNG JOSEPH LIN
VINCE KERNAHAN TOM O’NEILL
excess of 2,000 sqm are able to apply for 1.5 times the previously allowed gross floor area. This has added considerable value to National Director Manager
National Director Manager
many CBD properties. Sydney CBD Sydney CBD
Sydney CBD Sydney CBD
New South Wales: Sydney Metro SOLD BY COLLIERS INTERNATIONAL:
THE LEICHART COLLECTION
First Half Review 2020: Date: March 2020
Price $29,000,000
Transaction volumes across the NSW metro market outperformed both Metro and CBD locations across
the country for the first half of 2020, transacting 10 of the 36 assets sold nationally. Of these 10, five (5) Vendor: Best and Less
were transacted by Colliers International for a combined value of $186,740,000. Purchaser: Truslan Group
Yield: 4.63%
We have seen purchaser interest in the market stay strong and only see this lack of sales due to a
NLA: 4,154sqm
shortage of stock for sale. With buyer demand still strong we anticipate that vendors will start to put
properties to the market to capitalise on this trend, leading to a strong end to 2020 $/sqm: $6,981
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
Metro 10 $305,390,000 4.32% 42,414 $7,200 With the understanding interest rates will be lower for longer and stock market volatility being as evident as ever, property
remains a safe haven for long term investors. Short term, transactional evidence will be an accelerator for most groups, who are
reluctant to sell unless it is core to their business.
Transactions H1 2019 What does this mean for Vendors/Purchasers?
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values We expect softening in pricing for SME tenanted buildings as banks review their lending criteria, whereas premium investments
Metro 14 $498,430,000 5.11% 66,012 $7,551 will likely see yields remain at current levels pending the number of investment opportunities coming to market in the next 6 – 12
months.
Has this impacted the placement of Offshore Capital?
Offshore investors were active in metropolitan suburbs such as Parramatta, North Sydney, Macquaire Park and Newcastle
Key trends influencing the market in 2020: in Q4 2019. Activity was slated to continue into 2020 but only 1 of the 10 assets sold (221 Northumberland Street, Liverpool) was
to an offshore investor (institution from Hong Kong, sale facilitated by Colliers), this client has more recently purchased 16-18
Wenthworth St Parramatta
01. Low density metropolitan suburbs set to benefit from COVID cultural shift
We are of the opinion the new FIRB ‘hurdles’ are temporary. Whilst the new restrictions are impacting foreign investment over
Low density suburban office markets in NSW are set to benefit from the cultural impacts of COVID-19, as employees display
the short term, we have no doubt these groups will re-enter the market in Q4 2020 (or possibly in Q3). Australia undoubtedly
caution about entering overcrowded CBDs. Macquarie Park has observed an 18% increase in tenant enquiries in the 6 months to
relies on population growth; international travel restrictions will eventually loosen to ensure the future prosperity of the country.
June 2020. Parramatta is still experiencing demand for quality space with a recent lease transacted at level 8 , 25 Smith St for
1,200sqm at $590 net and an incentive of 12%.‘Hub and spoke’ style office models are becoming increasingly prevalent as back of
house operations are relocated to cheaper markets. Similarly, it is predicted offshore operations that were previously outsourced Future Predictions
will make the move back to Australia, with markets like Parramatta, Macquarie Park and Newcastle are likely to benefit from this The back half of 2020 will be typified by uncertainty. Whilst we anticipate a reduced number of transactions when compared
trend. to H2 2019, there will be transactional evidence that will encourage more on-market sale campaigns in the short term. The
increasing prevalence of ‘working from home’ and looming re-valuations may exacerbate the need for highly leveraged privates
02. High demand for value-add opportunities to divest. If Vendors opt against divesting, refurbishment works are likely to be undertaken to future-proof value. Unemployment
Passive investment properties are attractive although a dominant mandate across the market is for value-add opportunities. and office vacancy rates are predicted to be the key indicators.
Buyers are typically looking to reposition assets to realise the upside, rather than to hold on a long-term basis. These groups
acknowledge there will be continued demand for repositioned assets, particularly those secured by longer leases to government There will greater B and C-grade opportunities for occupiers, particularly in fringe metro locations. Investors will scrutinise the
or national tenants. As with all markets, this has reduced the yield spread between A and B Grade assets, evident by Vendors’ income profile (covenant/tenure) and their appetite will be influenced by the cost of debt and the ability to obtain it.
current price expectations. A recent conditional sale at 16-18 Wentworth St Parramatta saw the purchaser ask for a delayed
settlement to try and lease some of the vacancy. The property was sold at $40 million and was 60% vacant with an average rent
of $380/sqm. The building was in its original condition which was reflected in the building sqm rate coming in at $6,000/sqm. Sydney Metropolitan Investment Services Team
Sales in neighbouring properties were at the time achieving $8,000 to $9,000/sqm. The purchaser is hoping to capitalize on the
tight leasing market to lease the 4,000sqm of vacancy
03. New development on the rise
A Grade vacancy is set to increase in the Newcastle CBD on the back of government departments consolidating into a new building
at 6 Stewart Avenue. This coupled with new development is anticipated to increase vacancy rates. There is 0.4% direct vacancy
in A Grade assets in all metro markets, especially in the Newcastle CBD as at July 2020. The looming back-fill vacancy is likely
to increase incentive levels for tenants in the market. Parramatta will also see this trend with backfill in A grade assets like 60
Station St , 25 Smith St and 18 Smith St. With new building under construction like 6 Hassel St and 32 Smith St only 50% pre JOHN MCCANN TOM APPLEBY PETER MACADAM
committed with circa 20,000sqm of space available. National Director Associate Director Director In Charge
Sydney West Sydney North Newcastle
Victoria: Melbourne CBD SOLD BY COLLIERS INTERNATIONAL:
200 VICTORIA STREET, CARLTON
& City Fringe Date:
Price
April 2020
$72,000,000
First Half Review 2020: Vendor: Australian Unity
Purchaser: Nippon Telegraph & Telephone Corporation
There were two office assets between $20m-$100m which transacted in H1 2020, both occurring in
the City Fringe, 200 Victoria Street, Carlton sold by Colliers International for $72,000,000 and Flight Yield: 4.92%
Centre, 436 St Kilda Road which sold for $62,150,000. Whilst the Melbourne CBD did not witness NLA: 7,911
any Middle Market transactions in the first half, $789,000,000 did transact across two $100m plus
commercial assets including 350 Queen Street, sold by Colliers International in June for $145,000,000. $/sqm: $9,101
(These two $100m sales do not contribute to the data in this report).
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
CBD 2 $134,150,000 5.16% 15,418 $8,701 COVID-19 forced real estate funds and private owners to focus on core business operations, tenant retention, securing rental
income and debt management. Therefore, there has been reduced supply of investment stock offered for sale throughout the first
half of 2020. As real estate funds and owners assess the effects of COVID-19 on their portfolios, increased supply of investment
grade stock offered for sale is anticipated throughout the second half of 2020.
Transactions H1 2019
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values What does this mean for Vendors/Purchasers
CBD 10 $447,169,999 2.82% 36,464 $12,263 The Melbourne CBD is considered one of the most prestigious and tightly held office markets in Australia. Both private and
institutional owners are traditionally long term holders. Therefore, experienced and well funded purchasers are encouraged to
capitalise upon prized CBD opportunities as they become available.
Has this impacted the placement of Offshore Capital?
Key trends influencing the market in 2020: Colliers’ Asia Desk network has fielded an unprecedented number of acquisition mandates from Asia-based institutional and
private investors seeking Melbourne CBD and City Fringe “safe haven” investments. Buyers from Singapore, Malaysia and Japan
were quick to acquire Melbourne properties during the first half of 2020, pre-empting an influx of capital from Hong Kong over
01. Scarcity of Prime Melbourne CBD Investments the next 12 months.
COVID-19 has resulted in scarcity of supply of high quality Melbourne CBD commercial
investment offerings throughout the first half of 2020. Current owners of blue chip
Future Predictions
Melbourne CBD assets have focused on defensive property managment strategies COVID-19 is a “black swan event” that has impacted all global real estate markets. Australia benefits from a reputation as a
aimed at tenant retention and securing rental income. “safe haven” investment destination by international investors throughout Asia, North America and Europe due to our stable
government and transparent economy and financial markets. Therefore, key Australian commercial real estate markets, such
as the Melbourne CBD and City Fringe, are predicted to experience increased offshore purchaser demand during H2 2020 and
02. City Fringe Hotspots
beyond as COVID-19 travel restrictions are eased. Domestic investors are therefore advised to take advantage of international
travel restrictions and act to secure Melbourne CBD and City Fringe assets before international buyer competition intensifies.
Scarcity of supply in the Melbourne CBD has driven buyers to consider office
investments in suburbs directly adjoining the CBD. Alternative City Fringe hotspots
The Melbourne CBD office market commenced 2020 with a record low vacancy rate of 3.50% and was therefore in a robust
favoured by investors include St Kilda Road, South Melbourne, Carlton, Collingwood
position to weather volatile market conditions caused by COVID-19. As the market continues to stabilise and current owners
and West Melbourne.
rebalance their portfolios, transaction volume will normalise throughout H2 2020. Strong pent up purchaser demand from both
domestic and international buyers will ensure Melbourne CBD and City Fringe capital values and yields remain firm.
03. Capital Values and Yields Remain Firm
Capital values and yields for Melbourne CBD and Fringe office investments have Melbourne City Sales Investment Services Team
remained firm throughout the first half of 2020. Middle Market office capital values
are achieving between $7,000 to $10,000/sqm and trading on firm initial yields
between 4.50% to 5.00%.
Colliers International transacted two significant office investments on sharp yields.
200 Victoria Street sold for $72,000,000 on a yield of 4.92% and 350 Queen Street,
Melbourne achieved $145,000,000 on a yield of 4.80%. 350 Queen Street, Melbourne sold
by Colliers International Melbourne
City Sales team for $145,000,000
DANIEL WOLMAN OLIVER HAY MATTHEW STAGG
on a yield of 4.80%.
National Director National Director Director
Melbourne City Sales Melbourne City Sales Melbourne City Sales
Victoria: Melbourne Metro Sold by Colliers International:
173 Burke Road, Glen Iris
First Half Review 2020: Date: May 2020
The Melbourne Metropolitan office market witnessed four Middle Market sales in H1, 2020, down nine Price Circa $30,000,000
year-on-year from 2019 where thirteen were transacted. Vendor: Bingen Pty Ltd
Purchaser: Time & Place/ Fabcot
Colliers International sold 173 Burke Road, Glen Iris for circa $30M. In addition, 355 Spencer Street,
West Melbourne sold for $38.5M, 28 Clarendon St, South Melbourne sold for $28M and 454-472 Yield: 2.32%
Nepean Hwy, Frankston sold for $18.19M. NLA: 3,383sqm
$/sqm: Circa $8,868/sqm
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
Metro 4 $113,940,000 4.56% 20,249 $5,627 Australia has been praised for our management of the COVID-19 pandemic, with the country remaining ahead of the curve and
recording significantly lower COVID-19 cases to date in comparison to the USA and various European countries. Buyers have re-
emerged post-Easter and whilst there are some opportunistic buyers looking for bargains (i.e. a drop in value of more than 10%),
these buyers will not be successful in transacting in the Melbourne Metro Middle Markets as there is no evidence of any price
Transactions H1 2019 decline in prime locations. We do anticipate that secondary locations will be impacted, however this will be dependant upon the
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values quality of asset, income stability and tenant covenants. Realistic buyers will still look for quality assets but will now pay a greater
focus on the tenant covenants.
Metro 13 $274,965,000 6.18% 67,500 $4,074
What does this mean for Vendors/Purchasers
Vendors looking to put their asset on the market can still expect to receive high enquiry as interest rates remain low compared to
other periods of market turbulence such as in 2008 and the early 1990’s.
Key trends influencing the market in 2020: Purchasers will still have to actively compete and pay prices in line with the market pre-COVID-19 for well-located assets leased
to quality tenants. Q4 2020 will signal the end of government stimulus packages such as JobKeeper and the Mandatory Leasing
Code. Once these packages have finished, the true state of the office leasing market will be realised.
01. Lack of On-Market stock in H1 2020
Many vendors expressed concern about placing their property openly ‘on the market’ Has this impacted the placement of Offshore Capital?
in the first half of 2020. The majority of EOI’s that ran in February - March 2020 did Asian Capital is still showing strength for city fringe commercial land bank plays and mixed use or residential development sites.
not result in a deal as the peak COVID-19 period (mid March – pre-Easter) resulted Evidence of this was UEM Sunrise buying 21-53 Hoddle St, Collingwood for $43M through an off market Colliers International
in near market paralysis. Despite this, there has been increased activity in Q2 with brokered transaction. Asian Capital is mostly restricted to onshore Asian buyers who are now well established in Melbourne and
buyers looking to capitalise on low interest rates and confidence returning to the actively compete within a 15km radius of the Melbourne CBD, especially for land rich office assets.
market.
Future Predictions
There will be a lot more on market EOI’s and auctions and less private sales throughout the second half of 2020. The busiest
02. No signs of drop in value in prime locations quarter for deals will be Q4 2020, however strategic vendors should look to Q3 as the most opportune time to ensure their
properties standout with less on market stock to compete against. As at July 2020, there has only been circa $114M of Melbourne
Late Q2 has uncovered a number of deals in Due Diligence, moving to unconditional with no drop in values between pre-COVID
Metro office assets (above $10M) sold YTD. There is uncertainty as to whether the Melbourne Metro Middle Markets sales
(mid March 2020) to June 2020. A recent example of this is 21-53 Hoddle St, Collingwood (a mixed use commercial/residential
turnover will reach the normal annual levels of $1B+, however with market activity expected to increase in 2H 2020 we anticipate
development site) which entered DD early March 2020 for $43M and sold unconditionally mid-June 2020 for $43M. The city
the market will get moving again with large transactions likely to be on the horizon.
fringe and inner east markets are holding their values well, with the sentiment being that if there is going to be a decline in value
in the Metro market due to the impacts of COVID-19 it will likely to be in the outer east or south east sub-markets.
Melbourne Metropolitan Investment Services Team
03. Vendors to accelerate their activity in Q3 2020
Colliers International Melbourne Metro Middle Markets team have four On-Market EOI campaigns launching between 22 June and
mid-July 2020 at a combined valued of approximately $100M. All properties were listed in late 2019 or H1 2020 and vendors
have been very patient in waiting for the right time to launch these campaigns to the market.
The general consensus from our clients is they plan to launch their properties on the market in Q3 2020 and avoid the expected
avalanche of stock that usually arrives in Q4. PETER BREMNER TED DWYER RACHEL CLOHESY
National Director Director Associate Director
Melbourne Metro Melbourne Metro Melbourne Metro
Queensland Sold by Colliers International:
445 Flinders Street, Townsville
First Half Review 2020: Date: March 2020
There were limited transactions in the first half of 2020 across the key office markets in Queensland, Price $92,855,000
with all major settled deals over $10m having been contracted in 2019. The most prominent transaction Vendor: 445 Flinders Street Pty Ltd
outside South-East Queensland was executed by Colliers International of a Queensland Govt.-tenanted
Purchaser: Castlerock
asset in Townsville as detailed adjacent.
Yield: 7.75%
A notable shift between H1 2019 and H1 2020 transactions is the capital value uplift, this was primarily NLA: 11,615sqm
due to the 2019 offerings predominantly value-add or repositioning plays; with the settled 2020 $/sqm: $7,994
transactions being largely stabilised, core to core-plus investments.
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
CBD 1 $53,500,000 5.80% 5,704 $9,379 COVID-19 has caused a pause in transactions in 1H 2020, with few new transactions being struck as Vendors focus on portfolio
Metro 7 $359,405,000 7.59% 49,930 $7,198 management with tenants, the 8 deals which did transact over $10m were all contracted in 2019. This has led to a stand still
in Q2 allowing vendors to review their divestment strategy. We expect to see in 2H 2020 5 CBD and 2 Fringe assets come to
market of circa ~$150m value.
Transactions H1 2019
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values What does this mean for Vendors/Purchasers?
CBD 2 $66,730,000 4.65% 13,515 $4,937 The lack of assets ‘formally’ for sale on the market, provides a first-mover advantage for Vendors willing to demonstrate an
Metro 15 $271,960,156 7.45% 54,695 $4,972 intent to sell. Enquiry levels have increased during Q2 as investors have more time to assess fewer opportunities.
Most investors are still well capitalised and will focus their attention on income-stabilised assets. The pending opening of the
QLD border on the 10th of July will increase investment activity in the second half.
Key trends influencing the market in 2020: Has this impacted the placement of Offshore Capital?
We expect to see more Asian capital enter our market, driven by a flight to safety with Australia perceived to be comparatively
01. Flight to quality low risk vs Asian countries.
In CBD, metropolitan and key regional markets across Queensland, we are seeing
strong demand for defensive Govt.-tenanted assets with nil-low tenant credit risk Future Predictions
and minimal CapEx requirements.
Post-COVID it is clear that there is a bubble effect building up by way of:
This interest is driven by concerns over tenant solvency and also future spatial needs
of existing tenants. We expect yields on these assets to hold or potentially firm, 1. Low supply of assets genuinely for sale currently and forthcoming in the market (particularly high quality long WALE).
subject to underlying funding costs. 2. Investors are becoming increasingly frustrated on trying to acquire and now risking losing capital. High level of off-market
assets but investors only focusing on assets formally in the market where Vendors can demonstrate they are genuinely
02. Tenants seeking ‘COVID friendly’ offices interested in selling.
As we move into 2020, there will be a greater demand for assets with specifications With the aforementioned pent-up demand and high levels of capital ready to be deployed, vendors of office middle market
that accommodate COVID-19 parameters such as high car park ratio; large efficient assets who commit to a formal sale process can be confident of attracting a high level of interest in their assets.
floor plates; easily accessible; high number of lifts/staircase accessible; and a strong
data connection.
The above is in response to occupiers adapting to social distancing measures to
Brisbane & Gold Coast Investment Services Team
enable their businesses to continue to perform, which in turn will ensure sustainability
of the income and occupancy levels in the buildings they reside.
03. Resurgence of Interstate capital
There was a strong trend in 2019 of interstate capital acquiring ~$420m in the
QLD market. With borders reopening, we expect this trend to continue with strong
representation from HNW family offices, Syndicates and Unlisted Funds. This has
already been captured in recent campaigns whereby over 50% of enquiry has SAM BIGGINS HUNTER HIGGINS TOM O’DRISCOLL STEVEN KING JAMES CRAWFORD
originated from interstate. Director Director Director Director in Charge Director
Queensland Brisbane Brisbane Gold Coast Gold Coast
Australia Capital Territory Sold by Colliers International:
1 Thynne Street, Bruce
First Half Review 2020: Date: March 2020
The ACT has witnessed two major sales during the first half of 2020 both sold off market, 1 Thynne Price $39,300,000
Street, Bruce and 7 National Circuit, Barton, in comparison to H1 2019 where five major middle market Vendor: B&T Investments Pty Limited
assets were transacted in high profile on-market campaigns.
Purchaser: KM Property Funds
1 Thynne Street Bruce sold by Colliers International achieved a strong ~6.25% yield with a 9+ year Yield: 6.28%
WALE to the Commonwealth. 7 National Circuit was sold to ISPT, the adjoining owner of the site. Sale NLA: 5,848sqm
information is yet to be formally obtained.
$/sqm: $6,720
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
CBD 0 $0 0.00% - $0 COVID-19 has halted investment activity for private sector and multi-tenant buildings over the first half of the year, in particular
Metro 2 $53,800,000 6.28% 7,921 $6,792 Q2. Notwithstanding, this has resulted in many groups chasing long-term government opportunities, as evidenced by the off-
market sale of 1 Thynne Street in Bruce. Underpinned by the Commonwealth of Australia there were several domestic and
offshore capital sources that were strongly attracted to the opportunity and other investments featuring similar characteristics.
Transactions H1 2019
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values What does this mean for Vendors/Purchasers?
CBD 4 $308,500,000 7.11% 62,255 $4,955 The effects of COVID-19 will be felt in SME tenant buildings where prices are likely to soften, compared to secure investments
Metro 1 $29,800,000 6.93% 4,720 $6,314 which will likely achieve competitive pricing with potential for further yield compression. Whilst there has been limited transactional
evidence to support the market consensus, owners of secondary assets have experienced a short-term slowdown in leasing and
buyer activity, which will likely continue into H2 2020. However, the overall fundamentals of Canberra are likely to minimise any
significant effects.
Key trends influencing the market in 2020: Has this impacted the placement of Offshore Capital?
Promisingly, Asian investors continue to seek opportunities in Australia given the currency hedge opportunities and stable macro
01. Limited availability of stock factors. Investment into Australia and in particular the ACT market is highly attractive given its government stability. In the last
6 months the Colliers team has received a number of unsolicited off market offers for high quality, Government leased assets,
Owners who were previously considering divesting their assets are choosing to hold showcasing continued appetite from foreign buyers. Overseas capital made up ~25% of all enquiries for Canberra assets in 2019,
whilst they wait for the effects of COVID-19 to play out. This has resulted in limited however in H1 2020 this surged to approximately 45%.
availability of stock and a hesitation to go to market as opportunistic buyers seek out
a discount. This is particularly evident in buildings that house small to medium sized
tenants, who are more likely to be working through rental relief measures. Future Predictions
We anticipate that once owners have resolved their agreements or tenant extensions We are expecting to see strong activity in ACT in H2 2020 as vendors and purchasers look to capitalise on the gradual increase in
they will be more likely consider divestment which may lead to a flurry of activity in positive sentiment. Investors are more likely to scrutinise deals with lengthier DD requirements, seek mainly secured investments
H2. for the short term, and eventually move back towards value add opportunities as they move up the yield/risk curve in pursuit of
higher returns.
02. Unprecedented buyer demand for secure income streams
With several on and off-market campaigns slated for Q3 and Q4, there will be keen interest in these opportunities and the
There is strong demand from domestic and offshore groups seeking the relative value on offer in ACT assets underpinned by
transactional metrics.
the Commonwealth. With strong income security, AAA tenant covenant and the underlying macroeconomic fundamentals of
Canberra, buyers are keen to secure long-term cashflow on behalf of their investors.
Canberra Investment Services Team
Groups are moving away from value-add or mid-high risk investments in favour of long WALE’s. This is likely to cause increasing
competition for the limited stock available resulting in tightening prices and further compression of yields.
03. Major movement of Government Departments
We are witnessing significant Government activity across the ACT market from both Federal and local Government. At present
there is in excess of 150,000sqm of active and forthcoming leasing briefs, with Departments primarily seeking new accommodation
or to downsize current building densities. This is creating significant churn in the marketplace and new supply is expected to drive
rental growth in the A grade market due to the lack of quality buildings that cater to Government requirements. This is also leading
to backfill opportunities or withdrawal of ageing stock. MATTHEW WINTER PAUL POWDERLY
Director State Chief
Canberra Executive, ACT
South Australia Sold by Colliers International:
39-41 Dequetteville Terrace, Kent Town
First Half Review 2020: Date: January 2020
Eight transactions have taken place across South Australia in H1 with a combined total value of $144.425m. Price $5,225,000
Four of these transactions took place in the CBD for a combined value of $119.875m and the remaining Vendor: Wilten Pty Ltd
four were metro sales for a combined value of $24.55m.
Purchaser: SYC Ltd
Comparing this to H1 2019 where there were eleven transactions for a total value of $230.365m of which Yield: VP
seven were metro for a combined value of $85.865m and the balance of four (4) sales were CBD for a NLA: 1,410
combined value of $144.5m.
$/sqm: $3,706
Transactions H1 2020
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
COVID-19: The effects on the market
CBD 4 $119,875,000 6.80% 31,150 $3,848 During COVID-19 the market has experienced significant reduction in activity, with all marketing initiatives virtually put on hold.
Metro 4 $24,550,000 7.05% 6,685 $3,673 Whilst a lack of transactional evidence prevails, second grade assets are expected to fall in value between 10%-20%. On the other
hand, we expect there to be a flight to quality with long WALE, strong covenant assets expected to hold, if not increase in value.
Transactions H1 2019
What does this mean for Vendors/Purchasers
Region Total Transactions Total Sales Price Average Initial Yield (%) Total NLA Capital Values
Owners of second grade assets are likely to experience LVR and loan covenant pressure. Vendors will find it difficult to fund
CBD 4 $144,500,000 7.36% 31,423 $4,599 necessary upgrades in order to reposition and attract tenant interest in an increasingly tenant driven market. Purchasers will be
Metro 7 $85,865,000 7.70% 50,425 $1,703 opportunistic, more selective and will price occupancy risk at higher levels than pre-COVID.
Has this impacted the placement of Offshore Capital?
Travel restrictions has stifled activity, however most offshore capital is aligned with onshore investment managers and partners.
Key trends influencing the market in 2020: Feedback currently suggests ongoing interest in the Australian market given the value proposition which South Australia offers
in comparison to the eastern seaboard.
01. Vendors and purchasers press pause on Quarter 2 Future Predictions
The commercial property market is in a COVID induced holding pattern with marketing There is anticipated to be a period of discord for the balance of 2020 where vendors’ and purchasers’ expectations of pricing are
campaigns anticipated to commence with the easing and opening up of domestic misaligned, exacerbating reduced activity. We have witnessed a large quantity of transactions take place over the preceding five
borders to facilitate building inspections. years, with some assets trading multiple times, including 151 Pirie Street and 100 Waymouth Street.
Whilst on and offshore investors are focussed on the gateway cities, in particular Many of the recent transactions have involved repositioning and re-letting which are currently underway, including 26 Flinders
Sydney and Melbourne, the yield arbitrage, SA’s strong economic fundamentals and Street which was acquired by Corval: 89 Pirie Street which was acquired by Pelligra; and 431 King William Street which was
nation leading response to COVID-19, we expect will continue to underpin investor acquired by Quintessential Equity. The most recent repositioning acquisition was 27-39 Currie Street was which purchased by
demand. Acure Asset Management in 2019. Interestingly, all of these purchaser groups are east coast based with the exception of Acure
Asset Management who are based in Perth.
This demand from interstate investors seeking value was demonstrated by the sale
of a 50% interest in 100 Pirie Street, 169 Pirie Street, 141 Rundle Mall and 186
We anticipate that there will be a distinct lack of opportunities which will be actively marketed in H2 2020 and into 2021,
Greenhill Road from local syndicator Australasian Property Developments to Realside
especially at the top end of the market ($50m+).
for $100m which was finalised in the early stages of COVID-19.
Colliers International have witnessed deals under negotiation or in due diligence in Q2 2020 put on pause as a direct result of the
impacts of COVID-19. It is probable that up to 4 CBD office assets will come to market in Q3 or Q4 2020. Adelaide Investment Services Team
02. Prices will soften post COVID for secondary assets
Our conversations with Vendors have proved promising as we move towards H2, vendors are still motivated however are hoping
to achieve pre-COVID prices. Naturally we expect there to be some softening in pricing for secondary grade assets, particularly
those with a short WALE and existing vacancy as a result of expectations around leasing demand and the impact this may have
on rents, incentives and letting up periods. We expect that there will be a flight to quality, with investors seeking core, long WALE,
defensive assets potentially driving yield compression at the super prime end of the market.
ALISTAIR MACKIE PAUL VAN-REESEMA TOM ISAKSSON JORDAN SCHMIDT
National Director Director Associate Director Associate Director
Adelaide Adelaide Adelaide Adelaide100 Days of Managing COVID-19
on the Commercial Front Line
Adding Value to Commercial Buildings Under
Colliers Real Estate Management
“ Our national management experts are focused wherever our clients do business.
Colliers International Real Estate Management have a national commercial portfolio
of 4,373 assets comprising a total NLA of 10.42 million sqm. Within these buildings We are focused on working
there are over 10,000 tenants. The National Code of Conduct has been enacted closely with our existing clients to 18 Honeysuckle Drive, Newcastle
in most states and territories now and across our national portfolio, we saw an
assist them with any refinancing
average of 50% of tenants request rent relief under the Code. This has taken some IOOF Holdings purchased 18 Honeysuckle Drive, Newcastle in July 2019, their first Newcastle acquisition. The sale was a
time to work through, but the majority of these negotiations are well underway with requirements, counter-cyclical
collaborative effort between Colliers Investment Services, Office Leasing and Real Estate Management, across our Canberra and
the adjustments being continually recalculated as the months progress and tenants’ acquisitions, providing off market Newcastle teams with the property being sold on behalf of DOMA, a client of the Canberra office.
turnover continues to change. due diligence and advice resulting
in many successful outcomes. Completed in 2017, 18 Honeysuckle Drive is an A Grade,
To help our clients minimise the risk of vacancies across the portfolio leading up to This enterprising approach has seven-level commercial building covering 6,524sqm, 100%
the end of the prescribed pandemic period protections, we’re focused on supporting leased to a diverse list of corporate and Government
seen our Real Estate Management tenants, dominating the prominent Honeysuckle harbourfront
our tenants by safely reactivating their buildings quickly and helping them work
through reoccupying their premises. We’re also meeting regularly to check in on business generate 21 new precinct of the Newcastle CBD.
”
how their business is trading and how they are managing any payment plans to stay appointments nationally during
on top of their rental payments. this COVID-19 period. Our Real Estate Management (REM) team has managed the
asset since completion in 2017, guiding it through the
commissioning and establishment period, and were able to
assist the parties through the due diligence process to
ensure exchange.
While COVID-19 has disrupted most industries, acting swiftly and nimbly with clearly communicated
The REM team were subsequently reappointed to continue
processes has benefited our clients and tenants under our management. providing property and facilities management services
primarily due to two significant factors:
During the last 100 days some of the initiatives we’ve worked on include;
1. Extensive knowledge of the asset from its inception, Sold by Colliers International Investment Services team
Developed and implemented rent abatement calculator. having previously managed the property when it was on behalf of DOMA to IOOF. The Real Estate Management
owned by DOMA: and team retained the management for IOOF.
Implemented multiple cash flow modelling scenarios. 2. Colliers strong relationship with IOOF, developed
over many years by providing ongoing expertise and
Re-evaluated and drove further short and medium expense control. memorable service on the 8 other assets we manage
for IOOF across NSW and Victoria.
Realigned and re-timed cap ex programmes to improve cash flow.
Swiftly reacted and provided ongoing professional advice on COVID-19 restrictions,
National Real Estate Management Team
legislation and implications to buildings owners and to other stakeholders.
Assisted knowledge transfer and education of tenants with support packs and factsheets
Immediately altered messaging and communications platforms to focus on safety and
security.
Provided a variety of safeguards including enhanced cleaning practices and sanitising
stations. JULIA BATTERLEY DAVID KOLLIAS TIM MATTHEWS RUPERT CULLEN LYN GRAY KATE SLATTERY
National Director National Director National Director National Director National Director Head of Engineering,
Partnership approach with our tenants to assist them with accelerating their business (NSW) (VIC) (QLD) (ACT) (SA) Facilities Management
operations back to pre-COVID levels. & SustainabilityYour next opportunity is Colliers International
only one click away... Experts in office.
Colliers International Investment Services team are backed by a national
By cementing our position as national market leaders we team of experts at the forefront of the real estate industry. Through internal
are ready to accelerate your investment success with collaboration with our market specialists, we are able to act quickly and seize
opportunities you can find below. opportunities for our clients. By embracing change and thinking differently we
generate better solutions to drive exceptional results, maximising the potential
of your property.
Either click on the property below or visit: OFFICE LEASING
COLLIERS.COM.AU/OFFICE-MIDDLE-MARKETS We work alongside our Office Leasing team to provide advice to landlords
and prospective purchasers on current and future market dynamics, tenant
demands and drivers, rental rates and lease conditions.
We also have a number of off-market
opportunities across NSW, VIC, QLD, SA ASIA MARKETS
and ACT, to find out more contact your Engrained in our business, our Asia Markets team as the primary conduit
into the Australian property market and facilitate the wave of local and
local expert. inbound investment. Our national team speaks over 10 languages and have
a deep understanding of the cultural nuances that drive investment from
onshore and offshore groups.
VALUATION & ADVISORY SERVICES
When valuing your asset in current market conditions our Valuations and
Advisory Services team will provide a detailed sales analysis of the market
for potential purchasers.
REAL ESTATE MANAGEMENT
It is important to understand the needs of an incoming purchaser and the
amenity tenants want from your property. We can provide recommendations
Parramatta 180 St Kilda Road and assistance on improvements which may be needed to be made prior
to selling.
PARRAMATTA CBD MELBOURNE
Click here for more information Click here for more information GLOBAL CAPITAL MARKETS
Our Global Capital Markets team comprises over 1,200 capital markets
experts across 68 countries. This means we can connect our clients to
every potential buyer, capital source or investment opportunity around the
world.
DEBT ADVISORY
Our experts are proficient in sourcing the best debt deals for acquisitions.
Our Debt Advisory team has successfully improved pricing outcomes
for vendors by ensuring purchasers have access to the cheapest, most
efficient financing options, allowing them to bid higher.
20-24 Market Street 10 Hobart Place 46 Carrington Street PROJECT LEADERS
BRISBANE CBD CANBERRA CBD ADELAIDE CBD Not all purchasers can visualise an upgrade or redevelopment, nor know
what costs are involved. Our team has successfully transformed a number
Click here for more information Click here for more information Click here for more information of assets on-time and within budget which in turn has contributed to an
uplift in value of the asset.EXPERTS IN OFFICE INVESTMENTS
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