Is Sydney the new London for investing in commercial property? Some Singapore companies seem to think so 

AFTER a period which saw write-downs on Australian property by Singapore players, Down Under has seen a renewed spurt of interest in the commercial real estate market this year.  

Just this month, Metro and its joint venture partner Sim Lian acquired a freehold prime office property located at 1 Castlereagh Street. The price tag – A$196.4 million (S$172.7 million) for the 27-storey office building. It has retail on its ground levels and is located next to the newly opened Martin Place railway station which is in the heart of Sydney’s central business district (CBD). 

Also making their move this month were property developers Singapore Land and UOL, who are acquiring a 50 per cent interest in a Grade A commercial building in the CBD too, for A$460 million. The address of that building is 388 George Street. 

Earlier in the year, Keppel Real Estate Investment Trust (Reit) invested along the same street. It pumped in A$363.8 million for a 50 per cent stake in a Grade A building at 255 George Street.

Chief executive officer of Keppel Reit Management Koh Wee Lih said that the Reit has built up a good network of partners and local contacts in Australia. He added that the Reit’s other premium office building in Sydney’s CBD Core Precinct, 8 Chifley Square, is at 100 per cent occupancy.

A much-smaller deal was done by a consortium that is 90.5 per cent owned by First Sponsor Group. It inked a A$24.7 million deal with City Tattersalls Club to purchase the social club’s property in Sydney.

Australia’s economic fundamentals are attractive to investors. The country is projected to have a population growth of a healthy 1.3 per cent per annum. Gross domestic product growth is forecast at 2.4 per cent per annum between 2024 and 2033 which should spell good news for property investors, especially in major urban centres, said Kate Low, JLL’s head of international capital for Australia and New Zealand.

While the macro conditions look favourable, limited supply is another plus factor. Low noted that the supply of Grade A office buildings in Sydney is limited, with no new assets slated for delivery in 2025 and 2026 and the only additions coming from refurbishments. This could drive rental growth.  

Take 388 George Street which was fully refurbished in 2020, while 255 George Street had a major exercise completed in 2022. Such refurbishment could boost income growth, which may be of greater interest to Singapore investors compared with total returns.  

Another factor favouring Singapore investors is the recent period of elevated interest rates, which has made it challenging for many institutional owners to retain their investments.

Singapore companies with financial heft have the advantage of being able to step in quickly and capitalise on promising market opportunities.  

JLL’s Low says that the Sydney market offers access to high-quality assets. “As some property owners seek to address liquidity needs, premium properties that were previously tightly held are now becoming available to investors.”

Contrast this with London, which is a perennial favourite among Singapore investors but where the shine has been lost somewhat in recent years. Asia-Pacific investors are still anchoring many transactions, but the overall numbers are down.

Earlier this year, The Business Times reported on CBRE data which found that in central London, local and foreign investment in offices tumbled from a peak of £15 billion (S$25.6 billion) in 2021 to £5.2 billion in 2023.

Sustainability 

Another trend that could be driving investors to take a closer look at the Australian market is sustainability. For example, Keppel Reit’s 255 George Street comes in with a 5.5-Star Nabers (National Australian Built Environment Rating System) Energy Rating. Note that the maximum rating is 6-star Nabers. 

JLL’s Low points out that by 2030, it is projected that approximately 874,000 square metres of corporate office space in the Sydney CBD will be occupied by tenants with net-zero carbon targets. There’s likely to be a substantial shortage of buildings capable of meeting the sustainability standards required by corporate office occupiers needing to relocate to fulfill their net-zero carbon commitments.

Bearing that in mind, the Singapore properties should enable them to stand out among the crowd given their top-notch sustainability credentials. 

Back to office

What is a thriving office sector without workers? The excellent coffee available everywhere must be a draw, especially for this writer who visited Sydney not that long ago and found crowds very much in evidence in the CBD.

While the office sector has struggled in some US cities, where many have stayed away from the office, this has not been the case in Sydney’s CBD. 

Low says that the completion of stage two of the Sydney Metro earlier this year has made commuting more efficient and convenient for a larger portion of Sydney’s working population.

It does not hurt that the Sydney CBD offers a diverse array of shops, cafes and restaurants. 

Given the positive outlook and favourable market conditions, it would be no surprise if more Singapore companies seize opportunities, positioning themselves for growth in vibrant Sydney.