Cross-border capital reemerging in Sydney’s office investment market

Foreign investors accounted for 56% of investments in the year to October.

Offshore capital is returning to the Sydney office market following a lull in 2022 and 2023, according to a  Savills report. Over the year to October, cross-border investors have accounted for 56% of investment volume, compared to a decade average of around 50%.

“Capital from Japan, Singapore, Europe and the US have been active in 2024. Mitsui Fudosan purchased a 66% stake in the 55 Pitt Street development with an estimated end value c.AU$2.0 billion, while Deka Immobilien acquired 333 George Street from Charter Hall for AU$392 million,” the report said.

Additionally, US investment manager BGO purchased 10-20 Bond Street for approximately AU$580 million (still pending), its first office acquisition in Australia.

Here’s more from Savills:

Another factor driving the recovery in investment activity has been investors adopting countercyclical or opportunistic investment strategies. Quintessential Equity is a prime example of this through its acquisition of One Margaret Street, with plans to invest AU$90 million to rejuvenate the 18-storey office tower. This includes transitioning to an all-electric building to attract tenants placing a strong emphasis on amenity and sustainability.

Meanwhile, boutique property fund manager Forza Capital is acquiring smaller office buildings in CBD and CBD fringe locations as part of its counter-cyclical investment strategy. Following on from its acquisition of 117 Clarence Street in 2023, the firm recently purchased a heritage-listed, five-storey office building at 223 Liverpool Street in Darlinghurst, adjacent to Sydney’s CBD for AU$64.5 million. This acquisition aims to leverage demand from a diverse range of tenants who typically do not seek space in CBD locations.

While tenant demand in Sydney in the immediate aftermath of the pandemic has been concentrated on premium office space in the CBD Core, greater connectivity through the extension of the Sydney Metro will enhance the appeal CBD precincts outside the Core, and CBD fringe locations. High rents for premium space will also increase the attractiveness of high-quality A grade space for many tenants.

Investors are increasingly positioning themselves for a recovery in the Sydney office market, attracted by relatively high yields compared to many major office markets globally, interest rate stability and the prospect of rate cuts next year. This optimism is supported by a favourable outlook in the occupier market, driven by the limited availability of prime space and ongoing strong growth in population and employment.