The Sydney CBD office market has witnessed a strong resurgence in 2014 and these favourable results are expected to continue into 2015. Improved employment demand together with increases in the technology sector has assisted in the reduced vacancy position of the Sydney CBD, while continued demand for quality assets has pushed up capital values and reduced yields. residential conversions will see more withdrawals realised in the market. Strata have mirrored these trends as interest from both domestic and foreign investors create new highs in values despite record lows in turnover.
2014 was a strong year for the Sydney CBD Strata office market, while volumes were one of the lowest on record, the demand for investment stock resulted in a significant increase in capital values.
2014 was a strong year for the Sydney CBD Strata office market, while volumes were one of the lowest on record, the demand for investment stock resulted in a significant increase in capital values. During 2014 only $102.44 million changed hands in 137 transactions, this was down 18.13% on 2013 or 29.06% on 2012 results in terms of volume. With only 17,742sqm of stock of turning over during 2014, the capital value was significantly higher than any previous year averaging $5,774/sqm across the total CBD. This represents a staggering 13.38% increase on 2013 results which achieved $5,092/sqm. This growth was due to the strong increases in values in all precincts but Midtown and Core being the stand out performers, with strong increase by both domestic and foreign investors. A combination of low interest rates, limited availability of stock and the Asian influence has been the main drivers of this growth.
The volume of strata sales have been at a historical low despite the strong capital values on offer. Volumes were well split across Core $37.88 million, Western Corridor $32.82 million and Midtown $29.72 million while the Southern precinct had little transactional activity. All these volume levels were down on the previous year with the exception of Midtown which has had a 38.97% resurgence since last year. 2014 resulted in the smallest turnover for the Core on record which historically averages over $55 million or close to 10,000sqm, in strong contrast to this year’s 6,080sqm of turnover. While Western Corridor recorded a reduction on last year and Midtown up on the prior year these remained in line with an average range tracked historically. Demand has been strongest in the financial Core of Sydney however the push south and west of this precinct continues to be well accepted resulting in peak capital values.
With volumes down and demand levels high the increase in capital values is not surprising, however the level in which they have increased has bucked historical trends for some markets. The Core now averages $6,231/sqm which represents growth of 13.27% over the past 12 months, sales within 109 Pitt Street consistently recorded over $7,000/sqm while sales within 183 Macquarie Street have achieved in excess of $9,500/sqm driven by owner occupiers via SMSF’s and foreign buyers. Midtown recorded the strongest increase up 17.74% over the last year or 34.60% over a two year period to $5,746/sqm, this increase strongly skewed by foreign investment namely Chinese and Korean investors looking to secure investment stock towards the Chinatown and Koreatown districts. Western Corridor has been also been contested by private investors including SMSF’s taking advantage of the historical low interest rates together with foreign investors resulting in an increase of 12.51% to $5,517/sqm. The Southern precinct historically shows volatility in values due to the limited transactional evidence; the 2014 results are no different with these results remaining in line with the results of the past two years at $4,557/sqm.