Transaction volumes for office assets in Australia’s major CBDs totalled more than  $3.8 billion for the calendar year to the end of September, with transaction volumes for 2024 now  expected to exceed the $4.6 billion recorded in 2023, according to the latest research from Knight Frank. 

The firm found investment volumes to the end of Q3 2024 have been the highest in Sydney at $2.2  billion, followed by Melbourne at $698 million and Brisbane with $580 million. 

Q3 recorded investment volumes of $1.5 billion, while $1.8 billion was recorded in Q2 and just $477  million in office assets sold in Q1. 
Investment volumes for the past 12 months up to the end of September are now up 21% compared to  the previous 12 months. 

Cross border investors have driven the rebound in transactional activity, accounting for 47% of total  deal volumes to the end of September 2024.

Key transactions include Japanese investor Mitsui  Fudosan acquiring a circa 66% stake in 55 Pitt Street in Sydney for $1.3 billion and Singapore’s Keppel REIT acquiring a 50% stake in 255 George Street, Sydney for $363.8 million, as well as PAG  from Hong Kong purchasing 367 Collins Street, Melbourne for $301 million. 

Knight Frank Chief Economist Ben Burston said improving sentiment was driving greater liquidity in  the office markets of Australia’s capital cities.

“We expect to see a further pick up in deal momentum in the coming quarters, with investors now  feeling more confident to act,” he said. 

“This improvement in sentiment is due to several factors, including a change in the interest rate  outlook and the commencement of a rate cutting cycle from multiple central banks around the world. 

“Rates have now been cut across most major economies and real estate markets have responded  positively, with the listed REIT sector rallying since July.  

“Despite Australia being behind the curve in terms of rate cuts, our market has responded more  strongly, indicating that investors anticipate that the correction is nearly at an end and that valuations  will soon begin to recover.” 

Knight Frank’s National Head of Institutional Sales and Capital Advisory Ben Schubert said  another factor contributing to greater deal activity in Australia’s CBD office markets was evidence that  capital values are now stabilising for core assets. 

“After only a handful of deals over the past two years, a spate of deals in Sydney, Brisbane and  Melbourne in recent months have gone a long way to establishing a new baseline for pricing and  unlocking further activity. 

“In addition, prime yields were unchanged over Q3 in a sign that values are now stabilising.”

The Knight Frank research found there was divergent performance in leasing markets, with deal  momentum and rental rates differing by location. 

Net face rents in Brisbane shifted up further by 4.2% in Q3 to be up by 11.4% over the year, while  other markets were broadly stable.  

“Tenants have become more cautious in recent months, reflecting sluggish business sentiment and  high fit out costs associated with moving, so a higher proportion are opting to stay put,” said Mr  Burston. 

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