Australian office investment volumes back to pre-COVID levels 

Volumes increased 34% to $2.8b in the first quarter of 2021.

According to a report by CBRE, strong investor interest in commercial office assets in Australia has been evidenced by a number of large-scale transactions by local and offshore investors. 

Q1 2021 saw investment activity pick up with a total of $2.8b transacting across 26 assets. This represented an increase of 34% in investment volumes compared to Q1 2020. Offshore investors accounted for 45% of total investment volumes over the quarter.

In Q1, Sydney recorded the strongest activity with $2.1b across 11 assets transacted, followed by Brisbane with $254m across four assets and Perth with $228 across two assets. CBRE notes that CBD office yields remained relatively stable with the prime yield range between 4.6% - 6.7% and secondary range between 5% - 8.9% over the quarter.

The improved global economic outlook has caused government bond rates to rise in recent months as inflation expectations have increased. This is yet to have a material impact on office yields in Australia, with real bond rates in Q1 2021 close to pre-COVID levels. However, if this trend were to continue, there may be upward pressure over the medium term.

There is expected to be a further divergence of yields between prime and secondary assets over the next 12 months, as the flight to quality trend continues in the leasing market.