Domestic players are re-entering the Sydney office market, witha series of major deals expected to be finalised in the coming months, newanalysis from CB Richard Ellis says.
Investment sales activity in the Sydney CBD increased substantially in Q3, 2010totallling $532.25 million according to the CBRE report. CBRE tracked 17 majoroffice sales during the first nine months of 2010 totalling around $863.7million indicating a good pick up in activity over the quarter.
CBRE's Sydney CBD Office MarketView highlights that sales activity wasrelatively weak leading into Q3, with limited sales over $5 million.
However, the tables turned in the September quarter, boosted by sales such as77 King Street ($116 million), 233 Castlereagh Street ($102.5 million) and 35Clarence Street ($99.25 million) — all bought by domestic groups.
CBRE regional director, institutional investment properties, Rob Sewell says the activity highlighted a long awaited increase in onshore buyer activity.
"The high dollar has given the domestic players another reason to investas they stand a better chance of competing with the offshore capital,"Sewell says.
"You will see a number of other major deals announcedover the next few months with domestic groups. This will help entice morecapital and give people the confidence to invest. "
The banks were also increasingly willing to lend on CBD office investments andthis was opening up the market to new players.
The city's strengthening market fundamentals have underpinned buyer demand,with CBRE's MarketView report highlighting improved net absorption on the backof improving white collar employment growth in the first half of this year andincreased take up from the finance and insurance sectors.
However CBRE senior director, global research and consulting, Jennifer Williamssays increased supply levels were expected to result in a further increase inthe city vacancy rate this year.
"The improving employment outlook has cemented our strong net absorptionforecasts for 2010 with around 92,100 sqm of net absorption expected thiscalendar year," Williams says.
"With a significant improvement in demand it is usually the case thatvacancy rates fall, however with over 146,000sqm of net supply in the pipelineand due to complete in 2010, vacancy is likely to rise slightly to around 8.9%,up from 8.1% at the start of the year."
This will keep a lid on rental growth in the short term, with CBRE forecastingmoderate growth in prime net face rents of 2.5% in 2010.
However, with tenant demand continuing to improve and the quality of stock inthe city improving, rents are forecast to rise significantly in 2011 with CBREtipping a significant increase.
"Incentives are likely to decrease over 2010-2011 resulting in evenstronger effective rents," Ms Williams said.
"Looking forward, the overall vacancy rate is expected to peak by the endof this year before falling to a low of around 6.4% by the end of 2012."
