Tills ringing in suburban Sydney with $1.5 billion in office sales

​Sydney, 16 December 2013 – Strengthening market fundamentals and a lack of CBD opportunities have underpinned a series of major suburban Sydney transactions totaling more than $1.5 billion.

A new market review from CBRE highlights a significant spike in suburban transactions in 2013, headlined by REITs and offshore buyers.

CBRE Executive Managing Director Scott Gray-Spencer said the activity included the recent $413.16 million sale of the new Leighton Properties tower development and the $278.7 million sale of the Northpoint office tower, both in North Sydney.

Singapore’s Suntec REIT acquired the Leighton project at 177 Pacific Highway, while Northpoint was acquired by Cromwell Property Group and South African property investment group Redefine Properties Limited. Both transactions were negotiated through CBRE.

“Opportunities have become increasingly limited in the Sydney CBD, with the major REITs having recapitalised, reducing their requirement to dispose of assets,” Mr Gray-Spencer said.

“With more buyers than sellers, investors have been broadening their focus, particularly in light of an improvement in the underlying tenancy fundamentals in suburban markets such as North Sydney. The other attraction for purchasers has been the significant yield spread between suburban and CBD office investments, which has been as wide as 2-2.5%.”

CBRE’s review focuses on major suburban investment and development assets valued at over $45 million. It highlights 11 transactions this year in North Sydney, St Leonards, Parramatta and Macquarie Park totaling more than $1.5 billion.

The review shows that foreign buyers have been particularly active – among them Singapore’s AIMS AMP Capital Industrial REIT, which recently agreed to purchase a 49% stake in the $377 million Optus Centre at Macquarie Park in a deal negotiated through CBRE.

Other significant transactions this year include the $165.85 million sale of the Sydney Water Head Office in Parramatta to the UK-based Brompton Asset Management.

CBRE National Director, Capital Markets, Josh Cullen said an increase in the number of quality offerings in the suburban markets had drawn significant interest from both international and domestic buyers.

”This has a direct correlation to the cap rate compression witnessed in these markets, which is still attractive relative to debt costs,” Mr Cullen said.

Mr Gray-Spencer added that the current weight of capital chasing suburban opportunities was expected to lead to further yield compression, particularly for secondary assets, during 2014.

“There is significant pent-up buyer demand and investors are seeing real value in markets such as North Sydney which have struggled since the GFC but are now stabilising as the tenancy market improves,” Mr Gray-Spencer said.