The Office Perspective | 29 October 2024

The JLL Victorian Office Investments team's latest edition of The Office Perspective is now out!

Please contact me on 0415 767 915 / [email protected] or any member of the JLL team if you would like to receive our more detailed weekly updates via email each Monday morning.

This update will cover:

• Key Market Observations
• APAC Capital Tracker – Q3 2024
• Victoria’s Additional Activity Centre Announcement

Key Market Observations

Following our team’s consistent activity within the market, we have provided our concise key observations on the status of the broader Melbourne office market and sentiment towards the sector.

• Sentiment within the Victorian office market continues to rapidly improve, with occupancy rates, consistent leasing activity and plateauing incentives now providing stability to the broader market.
• Core plus investors (predominantly locally and interstate) are actively seeking quality opportunities that are priced well below replacement value, that also provide stable income streams, underutilised landholdings in highly strategic locations with a captive tenant market.
• We anticipate that several Middle Market office assets will be traded before the year is out, which will likely firm up pricing benchmarks for all major markets in Melbourne (CBD, Fringe and the South Eastern Suburbs).

APAC Capital Tracker – Q3 2024

Asia Pacific investment volumes reached the highest level in eleven quarters in Q3 2024, marking the fourth consecutive quarter of year-on-year growth. Most major property sectors recorded increases in transaction volume, signaling a broad-based recovery in the region's real estate markets.

JLL’s APAC Capital team have recently released their Q3 2024 Capital Tracker report which provides key data and insights across all core sectors of the market.

Please see below summary of the report.

Highlight Summary:

• Q3 2024 volumes reached US$38.8 billion, up 82% YoY
• Year-to-date total reached US$96.3 billion, up 28% YoY
• Hotels, retail and industrial & logistics sectors drove the market In Q3 2024
• Stellar performance in Japan, South Korea, and Singapore

APAC Office Market Observations:

• APAC office volumes reached USD 34.9bn YTD (Q3: USD 11.6bn), increasing 17% YoY (Q3: +66%). While domestic investors remained the major group of purchasers, more transactions involving overseas buyers have been observed during the quarter.
• South Korea office volumes topped the region in Q3 amid narrowing bid-ask gaps and lower senior loan rates for prime office buildings. Several significant transactions were closed on the back of strong market fundamentals exhibited by rental growth and low vacancy rate.
• Australia attracted foreign investors while domestic REITs remained active sellers. Deka Immobilien and PAG made office acquisitions in Sydney and Melbourne respectively.
• Japan remained a domestic market as J-REITs and developers continued to acquire office buildings in Tokyo and Osaka. Foreign investors, such as PAG and Gaw Capital, have offloaded office assets recently.
• Singapore had an active strata-title office market with private investors and occupiers acquiring office floors in freehold properties. Institutional investors remained cautious as interest rates were still elevated.
• Hong Kong was still in an investment slump with most investors staying on the sidelines during market downturn.

Victoria’s Additional Activity Centre Announcement

During the week, the Victorian government unveiled its plans to establish an additional 25 activity centres, bringing the total number of identified centres to 50 across the state.

This is a particularly positive move from the State Government as it looks to stimulate more density, consumer activity and importantly, better alternative outcomes for office buildings that are positioned within these precincts.

A summary of this announcement is provided below:

1. Melbourne plans to fast-track hundreds of thousands of new homes across 50 neighborhoods, focusing on high-rise buildings in affluent eastern and southeastern suburbs.
2. 50 new activity centres will be designated around transport hubs, including areas like Toorak, Armadale, Brighton, and Sandringham to address the housing crisis.
3. The plan aims to streamline the approval process for multi-storey residential developments, reducing it from up to 5 years to as little as 12 months.
4. The first 25 new sites are primarily located along train lines in Melbourne's eastern and southeastern middle ring, with height limits yet to be determined.
5. While the government sees this as necessary for housing supply, the plan is expected to face opposition from the Coalition, residents, and potentially local councils concerned about heritage and planning control.

For more information on these new activity precincts, please contact the JLL team at any time.

We hope you have enjoyed this edition of The Office Perspective.

Please reach out to our specialised team if there is anything we can assist you with.

Tim Carr - JLL Victorian Office Investments

Capital Markets at JLL