A major shake-up is under way in the ownership structure of the national office market following the $2.5 billion deal to sell the Investa Property Trust platform to the Chinese Investment Corp.
This will see a number of iconic office blocks changing hands, at a time when the leasing market is showing signs of improvement.
Yields are tightening, rents are flat, but expected to rise as vacancy rates starts to decline. Demand is higher for offices as the economy shows some green shoots, but there is also a slowing supply due to the conversion of towers to residential.
Under the long-anticipated deal, Morgan Stanley Real Estate has sold a mix of nine Premium and A-grade buildings. Located largely in the Sydney CBD, flagship assets include interests in 126 Phillip Street, 225 George Street and 400 George Street, Sydney, and 120 Collins Street in Melbourne.
As part of its acquisition of IPT, CIC International will enter into an investment management agreement with Investa Office (IOMH), thereby ensuring continuity of management services for the portfolio.
The change of ownership will not have an immediate impact on the properties, as all have long-standing tenants.
But with a concentration of landlords, owning the high-profile buildings, there could be come rent revision in coming years. The office market is controlled by DEXUS Property, GPT, Mirvac and Brookfield and Investa, and soon to be CIC.
CBRE's head of research Australia, Stephen McNabb, said that while most Australian office markets still favoured tenants, a tighter vacancy outlook in Sydney was driving an improvement in face rents, with incentives having stabilised.
CBRE's forecast for the Sydney CBD was for a below-average 7 per cent vacancy rate over the next 3-5 years, supported by a number of factors, including the withdrawal of office stock for residential redevelopment, he said.
"We have seen rent growth in Sydney in the first half, which we haven't observed for a long time," Mr McNabb said.
"This was one of the factors that meant Sydney was better place to withstand the office yield compression anticipated in some other Asia-Pacific markets."
According to Knight Frank's group director of research & consulting, Matt Whitby, alongside this growing investment from China, Australia's office-leasing market activity is increasing.
He said Australia's commercial occupier market is benefiting from increasing capital flows and investment from China, according to Knight Frank.
Office leasing movement in Brisbane, Melbourne and Sydney is being spurred on by Chinese developers, banks and fund managers as they increasingly develop and grow their global platforms.
