Foreign buyers move in on Perth office buildings despite low occupancy rates

Perth saw a growth of off-shore buyers through 2018, seeking office assets despite the city’s 19.4% vacancy rate, Collier’s International reports.

Focusing on building sales above $3 million, Colliers International’s Research and Urban Economics team revealed that foreign buyers made purchases totalling $446.3 million, while domestic buyers accounted for transactions calculated at $529.6 million.

The split places foreign buyers at 46% of office building sales in Perth and the metropolitan area in 2018.

Overall total sales of office buildings above $3 million grew by 18% from $823.15 million in 2017 to $975.95 million in 2018. Of this total, only $120.3 million of total sales were the result of private investors, with institutional investors dominating the floor.

A spotlight was cast over Singaporean buyers, who continued to be the dominant foreign group, adding three Perth office towers (Exchange Plaza, 1-5 Havelock Street and 441 Murray Street) to their Australian portfolios in the past 12 months.

“With softer conditions in their respective domestic markets, offshore buyers are looking for yields in more stable markets like Australia,” Colliers International Head of Investment Services Wayne Lawrence said.

“For foreign buyers with an Australian mandate, Perth yields are more compelling than Sydney and Melbourne where the office markets have peaked or are close to peaking in terms of rental growth.”

While the city’s high vacancy rate remains an influential purchasing decision, it hasn’t stifled interest. Confidence is improving, with many buyers showing propensity for risk-taking through the purchase of vacant and near-vacant buildings in 2018.

“The investment focus has mostly been on premium and A-grade buildings, with respective vacancies of 4.1 per cent and 17.7 per cent, but Zone Q’s purchase of two B-grade buildings on St Georges Terrace illustrates a willingness to take on vacancy risk and invest in speculative fitouts to rebuild occupancy,” Mr Lawrence said.

Official occupancy rates for West Perth and Perth CBD are expected to be released in February.

While the year has started slow for office sales, commitments for new mines in the Pilbara, strengthening conditions in other parts of the resource sector and a healthy infrastructure pipeline are all expected to increase demand for office space.