Sydney offers by far the most attractive office investment yields at 5.62 per cent, according to a list of the world’s gateway office investment destinations developed by Savills and Deakin University, with LA West, and San Francisco the only other gateway cities offering above 4.5 per cent as world yields continue to tumble.
The data from the World Office Yield Spectrum, which compares 43 cities across, Asia, Europe, the United States and Australia, confirms the continued ascendancy of office property as the investment of choice as investors scour global cities for the most attractive yields in the most secure markets.
The report found yields had firmed by an average 86 basis points across the 11 gateway cities since December 2014 with San Francisco’s yield plunging 235 points, Paris 101 points and Sydney 100. Hong Kong, now at a tight 2.71 per cent, saw the slimmest fall of 40 points, albeit from a low base.
Of the 43 cities, London’s West End, at 2.8 per cent, was the only other city to record a sub 3 per cent yield with Hong Kong, while Ho Chi Minh City (9.3 per cent) and Hanoi (9 per cent) offered the highest yield, however those yields reflected a perception of greater investment risk.
Report editor, Savills’ National Head of Research in Australia, Tony Crabb, said 10 year bond yields had fallen by an average of 50 basis points around the world in the past six months and averaged around 1 per cent with negative rates in Japan and Germany.
“Property yields have continued to firm but bond yields are falling faster and in that context investors are viewing risk premiums of between 2 and 3 per cent in most office investment markets as fair value’’ Mr Crabb said .
He said with some level of economic uncertainty remaining in most markets globally it was fair to say that office risk premiums would continue to offer better value and hence drive greater demand and even firmer office yields.
“Much of what happens in 2017 and beyond will depend on the course the US Federal Reserve takes with regards to interest rates. Chairman Yellen has made it perfectly clear that movements will be “data dependent”, so we wait.
“The movements in US interest rates will determine how currencies behave, how trade flows and how capital moves around the world”, Mr Crabb said.
He said the outlook for office yields was likely to be one of further compression particularly in gateway cities like Sydney where strengthening fundamentals were beginning to drive rental growth.
“Firming yields in many instances could be viewed as counter-intuitive as soft leasing markets have resulted in very high incentives and correspondingly low net rents, and so any growth in net effective rents, and thus returns, is certainly going to drive even greater demand for office property and ultimately firmer yields”, he said.
For more information, click 19082016 – Sydney leads world on office yields – EN and 19082016 – Sydney dẫn đầu thế giới về lợi suất văn phòng – VN.
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