A significant slip in sales volumes throughout the first half of 2018 is a strong indicator that Canberra remains a tightly-held market set against a backdrop of red-hot demand for assets in the nation’s capital.
Sale of investment-grade office properties totalled $453m in the first half of 2017, with all 6 of the assets that made up this total sold as a result of on-market campaigns. The makeup of these sales was also spread from core properties through to redevelopment plays as investors all across the risk spectrum targeted Canberra for opportunities.
The end of 2016 marked a turning point for both prime and secondary yields, which had already tightened from peaks during 2014, and they began a sharp movement south to their current levels. A number of owners used this opportunity to trade out of the Canberra market and capitalise on rising values, leading to the almost-record year for volumes and deal flow.
2018 has been a very different story. In the first half of 2018, only two office properties have changed hands for a total of $52.5m. 6 National Circuit in Barton traded in February to ISPT who will continue their precinct-approach to ownership and the building will join the neighbours at 1, 3-5, 2 and 4 National Circuit. 12 Faulding Street Symonston sold to Ascot Capital for $15m, the fourth acquisition in the ACT for this buyer.
The slip in sales volume is by no means a sign that Canberra is not on the radar of investors. Demand for commercial property in the ACT has never been stronger and anecdotal evidence suggests pricing has reached record levels. And it’s not just core product, typically the most sought-after assets in Canberra, which are generating interest. Investors have changed their metrics and most are now targeting core-plus and value-add opportunities. This has created one of the strongest climates for owners to trade secondary stock since well-before the GFC.
The horizon for the back half of 2018 is for an increase in sales activity with a number of assets likely to come to market, taking advantage of the strong pent up demand. Another $80m will be recorded for Q3 helping push the volumes closer to the 10 year average however a full year result in line with 2017 is unlikely. But with a robust local economy, ongoing infrastructure spend and limited new supply entering the market, investors right across the market will remain invigorated and show no signs of abating their search for a Canberra asset.