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Risk-taking private investors are making headway into Australia’s office market, blowing institutional investors out of the water.
Private actors now make up 61 per cent of commercial office transactions in Sydney, as institutional investors are pushed to the backburner.
According to Savills, private investors were responsible for over half of office transactions in Q1 2024, more than 2.5 times their historical average share.
Chris Naughtin, national director of capital markets research at Savills, noted that a strong appetite for risk is setting private investors apart from more conservative institutions.
“These emerging trends of asset repositioning and countercyclical investment strategies in Australia’s commercial property sector reflect global trends being played out in capital markets around the world,” said Naughtin.
“At a national level, private buyers accounted for around half of all investment volumes in Q1, reflecting a shift towards higher risk-return investment styles in line with predominant global trends. Institutional investors are generally more cautious and constrained by investment mandates, and often more leveraged,” he noted.
Compared to institutional investors, who can often be bogged down by lengthy procedures, private buyers benefit from greater agility and liquidity due to their small size. Savills noted that private investors are benefitting from “reduced competition from institutional investors”.
Throughout Q1, the most significant trend driving deal activity across Sydney was the acquisition of secondary office assets for repurposing. A Kent Street office tower was purchased for conversion into a luxury hotel, while an office block on Sussex Street is set for redevelopment into a mixed-use commercial and residential property.
Despite office assets experiencing a sharp decline in recent years, many private investors are defying trends by continuing to invest in office properties.
Private groups are even investing substantial amounts of money in high-quality refurbishment, such as am 18-storey Margaret Street building which is undergoing a $90 million refurbishment focused on sustainability.
As investment volumes continue to pick back up from their 56 per cent decline last year, Naughtin predicted that “pricing will continue to adjust throughout 2024, boosting investor confidence as the year progresses”.
“Australia is forecast to record the second strongest GDP growth among major advanced economies over the five years to 2029. Coupled with our sustained population growth, this is a significant tailwind for the Australian economy in the medium term, with potential flow on effects for demand for office space,” he stated.
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