04/02/2010 - 00:00

Institutional investors to return

04/02/2010 - 00:00

Bookmark

Save articles for future reference.

UNDERLYING demand in Perth’s CBD office market is set to be boosted by the return of institutional investors in 2010, while supply constraints will ensure the office vacancy rate does not reach its forecast levels of 15 per cent, according to a leading ma

Institutional investors to return

UNDERLYING demand in Perth’s CBD office market is set to be boosted by the return of institutional investors in 2010, while supply constraints will ensure the office vacancy rate does not reach its forecast levels of 15 per cent, according to a leading market analyst.

Colliers International research consultancy manager Erwin Edlinger told WA Business News the November sale by Charter Hall of its stake in office tower, Alluvion, to Commonwealth Property Office Fund for $95 million was an indication institutional investors were ready to return to the CBD office market.

Mr Edlinger said investment syndicates and high-net worth individuals were also in a position to increase demand, albeit in the $50 million and below bracket, as compared to $50 million and above for institutional investors.

“The institutional investors have re-weighted their portfolios and now they’re looking to acquire over 2010, and also there is the presence of your syndicators and your high net worth individuals that were active in 2009,” he said.

“Most of the institutionals went through a similar scenario, being under pressure with their assets and looking to re-weight and offload any assets that were undesirable.

“Now they’ve raised funds, they’ve addressed their credit issues and they are looking to acquire any quality assets.”

According to Mr Edlinger, the buoyant outlook in Western Australia’s wider economy had generated significant international investment interest.

“A lot of them consider WA, or even Australia as a whole, pretty safe compared to some of the overseas markets that are quite volatile,” he said.

“The economic fundamentals are stronger in WA than some other countries; the banking sector is a lot more robust than some other countries, so they definitely consider WA as a preferable investment option.”

Mr Edlinger said the June 2009 sale of 172 St Georges Terrace to an international buyer for $38 million was a good example of the extent of overseas interest.

“We sold (172 St Georges Terrance) to an overseas investor for around $38 million; he came in, paid cash for it, did limited due diligence on it, and he’s looking at more assets in WA,” he said.

While supply of office space is expected to increase during 2010, with major CBD office projects such as one40william, Raine Square and Alluvion to be completed, the increased interest from investors has caused a contraction in office vacancy rate forecasts.

Market analysts had forecast office vacancy rates to hit 15 per cent by 2011, but Mr Edlinger said recent activity in the marketplace has forced a revision of that forecast.

“In the short term, our research indicates a stabilisation of the vacancy rate, sitting around 8 per cent,” he said.

“There’s probably been a contraction in that vacancy rate forecast; again as economic conditions improve the outlook becomes more positive

“The x-factor is the backfill space that is likely to re-enter the market at some stage.

There are variables there, being, when the stock is withdrawn, how long it takes to be refurbished and again how long it takes to be redelivered to the market.

“That’s going to have an influence on where the vacancy rate moves up, it will be moving up, but the forecasts won’t be as aggressive as they were mid-2009; 15 per cent is probably unlikely at this stage, anywhere between 10 and 12 per cent is probably likely.”

Mr Edlinger said the increase in certainty for tenants, thanks to the economic outlook, had contributed to the reduction in vacancy forecasts.

“Tenants are definitely moving forward in their decision making, whereas before they were quite hesitant in committing leases or relocating, because they were unsure about the long-term outlook,” he said.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options