Interstate, international capital poised to flow into Perth CBD

Perth – Western Australia – Cygnet West is expecting interstate and international investors to return to Perth’s CBD office market in a big way in the next 12 months, after emerging as the city’s dominant broker in 2021.

The recently renamed agency brokered 95.4 per cent of all Perth CBD office sales worth more than $10 million in the last 12 months, an exceptional result in a challenging period where a weight of capital was seeking to acquire Perth assets but was stymied by ongoing border restrictions.

A total of six properties worth more than $10 million transacted in the CBD in 2021, with Cygnet West involved in five of those deals, collectively valued at more than $809 million.

Highlighting the period was the acquisition by DEXUS of a circa 50% interest in the Mia Yellagonga, Woodside Petroleum’s headquarters on Mount Street.

This asset, which is valued at circa $1.0b in total, represented the largest CBD office transaction in many years. ,

Our office was also jointly involved in the $272.5 million sale of 140 St Georges Terrace, with the 30-storey tower acquired by a joint venture between Primewest and Blackrock from AMP Capital.

Other major transactions brokered by Cygnet West included the $28 million sale of the iconic London Court retail precinct, the $23 million sale of 441 Murray Street and the $11.4 million sale of 12 Kings Park Road.

Cygnet West’s Head of Commercial Agency and Partner, Wayne Lawrence, said it was an exceptionally busy year for the Capital Markets division, with significant interest in Perth commercial property driven by the strength of Western Australia’s rapid economic recovery from the COVID crisis.

“There was a lot of local interest in assets, and while the funds and parties over east were interested in Perth, the fact that they couldn’t get over here due to border restrictions made it difficult,” Mr Lawrence said.

“When those border restrictions eased earlier in the year, we had a flurry of east coast funds come over to Perth, because there was pent up interest in Perth as a place to buy assets.

“That benefited 140 St Georges Terrace in particular, when we put that to market, but when the borders closed in July, those guys couldn’t come over here so whilst they were interested, it just made it harder for them to actually transact unless they had a team on the ground here.”

Mr Lawrence said he expected a similar flurry to occur early in 2022 if Western Australia’s borders reopen as scheduled, with offshore, particularly Singaporean investors likely to quickly make their presence felt.

“There hasn’t been the normal, traditional weight of offshore money acquiring assets here in Australia in general, it’s been two years of reduced activity in that regard, which means that there is a weight of capital that essentially needs to come to Australia to balance their portfolio,” he said.

“We expect that to result in a flurry of offshore investment, particularly from Singaporeans, into Australia – and Perth is set to benefit from that.”

Cygnet West Commercial Agency Partner Tory Packer said there had been a significant lift in market activity in 2021, as compared to the previous year. However, the limitations on travel had been a headwind for potential vendors of existing buildings, while those seeking to sell development sites were grappling with the global increase in construction costs.

Ms Packer said ongoing uncertainty around construction costs and labour shortages would continue to pose challenges, but the reopening of WA would likely facilitate a strong round of transactional activity.

“We’ve really missed the presence of east coast and offshore buyers in this market, in terms of sellers wanting to hold off on sales,” Ms Packer said.

“We’ve already got an exciting pipeline for early next year that will be hitting the market after February 5.

“We’d like to hope that there is not going to be any further holdup there and we can bring some bigger assets to market that will be suited for east coast and international buyers because of the capital that’s required to acquire them.

“There is a bit more excitement to come in the Perth CBD and West Perth in terms of larger scale office buildings once everything is opened up again.”

Cygnet West Capital Markets Head of Agency and Partner Ian Mickle said while there were downside risks around the escalation of the Omicron variant, he expected a significant amount of capital to chase well-leased assets with strong yields.

“Everyone always wants those,” Mr Mickle said. “Value-add opportunities will be there as well, where people can buy them at the right price.

“Where you can see some upside, there will be plenty of capital for that.

“Buying long WALE assets means that you’re buying them at really low yields, whereas if you buy something that’s a value-add opportunity, you can often get a better yield.

“There is more risk, but you can get a much better return if you take that risk.”