JLL Australia Office Market Investment Review Apr 2010

Office Investment Market ReviewJanuary 2009 – March 2010 Australia

2 Jones Lang LaSalle | Office Investment Market Review

A distinct price point was observed in

early 2009. There were no transactions

above AUD 60 million recorded in the

first quarter.

While the level of stock in public on-market

campaigns was low in early 2009, there

were high levels of stock available on

an off-market basis. Institutional owners

were quietly willing to consider offers on

properties across their portfolios with a

view that property fundamentals would

deteriorate and capitalisation rates would

move out further. With this supposed

approaching storm, offshore groups

became more interested in the Australian

property market, thinking that they will

be able to pick up quality property at

distressed prices.

Declining asset values led to a number

of A-REITs approaching (or breaching)

loan covenants. However, successful

The 2009 Australian Office Investment MarketGlobal economic uncertainty and tight

credit conditions continued to cast

a shadow over the Australian office

investment market in 2009. However, the

Australian economy proved to be resilient,

avoiding a technical recession in 1Q09,

followed by three successive quarters of

positive GDP growth (2Q09 to 4Q09).

In the second half of 2009, the improving

economic conditions and relatively solid

office market fundamentals provided

greater confidence to both local and

overseas investors.

The first half of 2009 followed the trend of

2008. Buyers remained cautious, although

low interest rates and higher yields

encouraged activity from private investors

as the projected returns were above

historical benchmarks for office buildings.

Highlightscapital raisings by large A-REITs from

institutional investors generated positive

sentiment in the office sector. It was

estimated that the A-REITs successfully

raised AUD 14 billion in equity capital

in 2009. With these capital raisings, a

number of institutional owners started to

reconsider their positions and pulled their

properties from the market. As the year

progressed, the positive sentiment created

by the recapitalisation of the sector and

the firm market fundamentals started to lift

the shadow that was cast over the office

sector and gave fund managers room to

strategise and reconsider their positions.

In late-2009, the market started to see the

return of the Wholesale and REITs with

increasing number of buy mandates.

In 2009, access to debt financing

remained difficult. While the official

interest rates were at historic lows,

3Jones Lang LaSalle | Office Investment Market Review

financing costs had significantly

increased, with spreads above bond

rates at up to 400 basis points plus

facility fees. The ability to acquire ‘club

debt’ stalled, and many banks’ new loans

facilities for commercial property had

stopped. For those groups that were able

to source debt, the rules had changed.

Banks’ loan-to-value (LVR) ratio and

debt coverage ratios had become more

stringent. Banks were no longer lending

on property or projects that were not solid

opportunities and the ability to acquire

debt above AUD 50 million was scarce.

Jones Lang LaSalle recorded 107 major

(over AUD 5 million) office transactions in

2009, totalling AUD 3.76 billion (Figure 1).

Both the number and value of sales were

comparable to 2008. It is worth noting that

the 2008 figure was inflated by a number

of large transactions earlier that year that

were actually negotiated in 2007 and

settled in 2008, while the 2009 figure did

not include a number of large transactions

that entered due diligence towards the end

of the year.

The average transaction size of AUD

35.12 million remains well below the

figure recorded in 2006 (AUD 45.39

million) and 2007 (AUD 39.75 million).

While the average size of transaction was

comparable in both 1H09 (AUD 34.73

million) and 2H09 (AUD 35.50 million), the

number of transactions increased from 45

to 62 in 2H09.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0

$1,000

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$8,000

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Value Number

Figure 1: Total Office Transactions

Source: Jones Lang LaSalle


Victoria and Queensland dominated

transaction activity in 2009, accounting

for 27.7% and 21.3% of the total value

of transactions recorded. The positive

fundamentals of the Melbourne office

markets and the availability of assets

at the private investor price point were

the main drivers for strong activity

in Victoria. Interestingly, there were

a number of purchases made by

overseas-based private investors, and

a heightened interest from participants

will limited exposure to the Australian

property market. Activity in Queensland

was driven by local private investors, a

number of whom disposed of assets in

the 2006–2007 boom and re-emerged as

active purchasers.

Similar to 2008, there were fewer large

transactions (greater than AUD 100

million). In total, seven assets above AUD

100 million were transacted compared

with an average of 15 per annum between

2003 and 2007. The reduction in larger

transactions and a strategy to dispose of

assets in markets outside of Sydney is part

of the reason for the reduced sales volume

in New South Wales, which accounted

for 19.5% of transactions by value. New

South Wales is seen as a barometer for

the sentiment of the wider market, and

the turnaround in sales from AUD 112

million in 1H09 to AUD 623.5 million over

2H09, coupled with the increased number

of settlements in early 2010 reflects the

increased optimism in Australia.

On average, indicative equivalent yields

appear to have stabilised for prime assets.

Indeed, a number of December 2009

valuations showed capitalisation rate

compression for well-leased prime assets.

1 Early Downturn2 Late Downturn3 Trough4 Early Upturn5 Late Upturn6 Peak

6

5

4

1

2

6

3May ’92 (2.8) May ’93 (2.9)

Nov ’95 / May ’96 / May ’94 (3.9)Nov ’03 / May ’03 /Nov ’02 / May ’02 / (4.0)

May ’95 / Nov ’94 (4.1)May ’97 / Nov ’97 / May ’98 (4.3)

Nov ’98 (4.9)

May ’99 / May ’01 / Nov ’00 / Nov ’04 / Jun 04 / Nov ’05 / Jun 05 / Nov ’06 (5.0)

Nov ’99 (4.6)May ’00 (4.7)

Nov ’93 (3.2)Nov ’92 (2.7)

May ’91 (2.4)Nov ’91 (2.5)

Nov ’08 (1.4)

Nov ’09 (3.0)

Nov ’01 (6.0)

Figure 2: Total Office Transactions

These figures show the position on the cycle based on the median of responses. Source: Jones Lang LaSalle

In 2010, additional institutional investors

are expected to re-enter the market and

overseas investors will become more

prevalent as it is now clear that distressed

quality core assets will not appear on

the market. Increased competition for

assets, risk premiums above historical

benchmarks, the stabilisation of debt

markets and the prospect of strong

medium-term rental growth could lead

to yield compression by late-2010. With

greater depth to the buyer pool, the total

and average value of transactions is

predicted to increase over the next

12 months.

What has happened so far in 2010?Respondents to the latest Jones Lang

LaSalle Survey of Investor Sentiment

(November 2009) believe that the overall

real estate market is currently at the

bottom of the property cycle (Figure 2).

The shift in investor sentiment has been

rapid from the late upturn stage in 2007, to

an early downturn in 2008. In comparison

the property market downturn of the early

1990s took three years to progress from

the peak (1990) to the trough (1993).

With investors believing that the bottom of

the cycle has occurred, transaction activity

improved in late 2009 and a number of

properties have reached settlement in the

first part of 2010.

With the Sydney CBD office market at

the trough in terms of effective rents and

the peak for equivalent yields, investors

have looked to capitalise on the bottom

of the cycle. There were five recorded

transactions in the Sydney CBD totalling

AUD 944.1 million. The largest transaction

to complete in 2010 was the NPS of

Korea purchase of RBS Tower @ Aurora

Place at 88 Phillip Street, Sydney for

AUD 685 million.

Interestingly, a number of offshore groups

have made their first entry into direct real

estate in Australia. K-REIT purchased a

50% stake in 275 George Street, Brisbane

for AUD 166.0 million, while Aviva

Investors purchased 80 Clarence Street,

Sydney for AUD 29.5 million.

2010 Sales

Property Name Address Suburb Month Sale Price Initial Yield NLA (SQM) Rate ($ per sqm) Vendor Purchaser

New South Wales

RBS Tower @ Aurora Place 88 Phillip Street Sydney Mar-2010 $685,000,000 6.6% 45,328 $14,009 Commonwealth Property Investment Trust NPS

55 Hunter Street 55 Hunter Street Sydney Feb-2010 $106,100,000 ~7.0% 13,622 $7,789 ISPT Core Fund City Freeholds

80 Clarence Street 76-80 Clarence Street Sydney Feb-2010 $29,500,000 8.0% 5,481 $5,382 Oakland Property Holdings Pty Ltd Aviva Investors Asia Pacific Property Funds

8 West Street 8 West Street North Sydney Jan-2010 $19,000,000 10.1% 6,028 $3,094 Becton Office Fund Property Bank Australia & Security Capital Corporation

60 Martin Place (50%) Sydney Feb-2010 $95,000,000 8.0% 27,855 $6,821 Martin Place Property Trust Gwynvill Group

52 Alfred Street Milsons Point Jan-10 $51,000,000 ~8.0% 10,219 $4,991 Colonial Direct Property Investment Fund Lipoma Pty Ltd

107 Mount Street North Sydney Jan-2010 $33,000,000 8.0% 6,201 $5,130 Century Funds Management Undisclosed Private Investor

Victoria

Myer Headquarters 800 Collins Street Docklands Mar-2010 $76,870,000 7.7% 28,676 $5,213 Australian Prime Property Fund SEB Asset Management

1 Spring Street Melbourne Mar-2010 $67,000,000 7.5% 31,776 $4,217 Record Realty Highpoint Property Group

357 Collins Street (Former Stock Exchange House)

357 Collins Street Melbourne Mar-2010 $45,000,000 N/A 21,455 Development Maxicity Australand

383 King Street West Melbourne Jan-2010 $34,000,000 8.1% 12,989 $2,618 Trinity Stapled Trust/Trinty Property Trust Henkell Brothers Australia Pty Ltd

171 Collins Street 171 Collins Street Melbourne Mar-2010 $15,500,000 N/A Development Charter Hall Office REIT CBus Property

Queensland

275 George Street (50%) Brisbane Jan-2010 $166,000,000 7.0% 40,317 $7,952 Charter Hall Core Plus Office Fund K-REIT Asia (Australia) Trust

Navision House 10 Market Street Brisbane Jan-2010 $34,254,000 10.2% 6,850 $4,803 Heathley Diversified Property Fund GDI No. 33 Brisbane Office Trust

South Australia

Hp House 148 Frome Street Adelaide Feb-2010 $17,600,000 5.0% 4,680 $3,761 ISPT Core Fund Local Government Association of South Australia

2010 Major Office Transactions – Q1 (greater than AUD 15 million)

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-5%-4%-3%-2%-1%0%1%2%Annual GDP Growth


The Australian economy avoided a

technical recession in 1Q09 and recorded

positive growth figures in each quarter.

The Economist Intelligence Unit (EIU)

estimate economic growth of 0.9% for

Australia in 2009, making Australia and

Korea the only major advanced economy

(out of 33 countries) to record positive

GDP growth over the calendar year

(Figure 3).

A number of factors have contributed

to the performance of the Australian

economy. The swift policy response

was highlighted by the Reserve Bank of

Australia aggressively cutting the official

cash rate by 425 basis points from

September 2008 (7.25%) to April 2009

(3.00%) and the Federal Government’s

various policy measures, including direct

transfer payments to tax payers and

longer-term investments in infrastructure.

To put the fiscal policy spend in

context, the Federal Government spent

approximately 5.4% of GDP on the various

stimulus measures. This figure was one

of the highest in the OECD, only behind

South Korea (6.1%) and the US (5.6%).

After reaching a low of 3.9% in February

2008, unemployment rose 1.8 percentage

points to 5.7% by March 2009. Job losses

were concentrated in the finance and

insurance and property and business

services sectors, resulting in a rise in

sub-lease availability as major office space

occupiers restructured, consolidated and

released excess space to the market.

From 3Q08 to 2Q09, sub-lease vacancy

increased by 1.6 percentage points to

2.1% of total stock.

Economic Overview

The resilience of the domestic economy

has supported labour markets and the

underlying demand for office space.

Unemployment fluctuated through the

course of the year before tightening

to 5.6% in December 2009 and 5.3%

in February 2010. The unemployment

rate masks the growth in the Australian

workforce, which has increased from

10.79 million in March 2009 to 10.94

million in January 2010.

Business confidence has staged a

recovery in the second half of 2009. The

NAB Business Survey (February 2010)

showed confidence was at an 8-year

high. The majority of corporations are no

longer exploring sub-lease opportunities

Figure 3: Real GDP Growth, Advanced Countries, 2009

Source: EIU

and are willing to retain hidden vacancy in

their real estate portfolios in anticipation

of growth over the next two to three years.

Consequently, sub-lease availability

declined to 1.8% of total stock in 4Q09

and is expected to decline towards the

20-year average (1.1%) through the

course of 2010.

The Australian economy is forecast to

rebound strongly and Access Economics

project growth of 2.5% and 3.5% in

2010 and 2011. As the economic

-4%

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0%

2%

4%

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20122011201020092008

y-o-y% Change

Finance & Insurance

Property & Business Services

Communication Services

Public Administration

recovery gathers momentum, this will

precipitate an upturn in employment

growth for the key industry sectors

and demand for office space (Figure

4). This recovery is supported by the

strengthening of lead indicators such as

the ANZ Job Advertisements series and

the employment component of the NAB

Business Survey.

While the outlook for the Australian

economy is positive, some negative points

remain. Credit markets are improving,

but the cost of debt as illustrated by

the spread between corporate and

government rates remains high. Overseas,

the Chinese government is tightening

bank lending criteria in response to

overvalued asset prices and excess

capacity in industry sectors, including

steel production, aluminium smelters

and concrete. In the US, unemployment

remains at 10.0% and private sector

demand remains weak.

The economic recovery is reflected by the improvement in conditions across the office markets. Leasing enquiries reached a cyclical low in June 2009 and have staged a remarkable turnaround over the second half of 2009, increasing by between 10% and 50%, depending on the market.

Businesses are increasingly willing to make long-term capital investment decisions, including real estate relocation decisions. The rising level of enquiry is a precursor for increased leasing transactions, which are starting to recover and will improve further in 2010.

Kevin George Head of Leasing – Australia

The Changing Nature of Tenant Sentiment

Figure 4: Employment Growth, Key Industry Sectors

Source: Access Economics


VendorsCapital values fell by an average of 20%

to 30% for prime office assets between

December 2007 and December 2009.

A number of A-REITs approached (or

breached) loan covenants, although

lenders were reluctant to force asset sales

while buildings managed to maintain

high occupancy rates and were cash flow

positive. Refinancing activity continued

with the Reserve Bank of Australia

(Financial Stability Review, September

2009) stating that the larger A-REITs had

successfully refinanced AUD 24 billion

of debt since January 2009. Meanwhile,

commercial mortgage backed securities

markets (CMBS), which traditionally

provided some diversification in funding,

remained all but closed—although real

estate firms have generally been able

to replace this financing facility mainly

through bank loans. Essentially, A-REITs

were able to rollover debt finance,

however the spreads increased.

Whilst they were able to rollover debt

finance, the larger A-REITs were also

successful in raising equity capital to lower

gearing ratios. It is estimated that A-REITs

raised AUD 14 billion in 2009. There was

a disparity with the larger A-REITs with a

quality portfolio of assets more successful

than the smaller A-REITs that were

weighted towards secondary assets.

Consequently, the volume of asset sales

by A-REITs was lower than expected

in 2009. They remained net sellers of

commercial property; however, there was

limited evidence of distressed vendors

even if some were highly motivated.

Review of 2009In 1H09, the groups in the market that had

cash or access to cash, mainly private

and offshore investors, were active.

This was due to the perceived unique

opportunity to acquire good quality assets

across Australia at relatively soft prices.

While little on-market campaigns were

conducted, the number of properties

being discussed off-market was high.

A clear vendor–buyer gap still existed,

however as time went on, this gap

started to close. The narrowing proved

to be short lived. In 2H09, a number of

A-REITs started to withdraw assets (prime

assets in particular) from sale, while

pricing started to firm towards end-2009

– in some instances, above June 2009

valuations. Through the course of 2009,

A-REITs accounted for 11.1% of the total

transactions by value.

The immediate fix of a rights issue was

not readily available to unlisted property

trusts. Hence, the primary strategy for

this sector to deal with refinancing and

covenant issues and in some instances,

to deal with clients’ redemption issues

was to sell assets. In 2009, the unlisted

sector accounted for 48.0% of recorded

transactions (by value).

Developers and property companies were

net sellers in 2009, accounting for 16.6%

of vendors by value. Private investors

continued to be active on both sides of

the ledger and accounted for 7.0% of

transactions by value.

Although offshore investors were net

purchasers of commercial property, a

number of offshore groups reduced

their exposure to the Australian market.

Offshore investors represented 7.2%

of vendors by value. The Grosvenor

Group disposed of 20 Hunter Street,

Sydney for AUD 77 million and 25

Smith Street, Parramatta for AUD 48.4

million; while UK fund manager New

Star Asset Management exited Australia

after the disposal of 414 LaTrobe Street,

Melbourne for AUD 49.5 million.

Although syndicates only accounted

for 3.8% of the vendor type by value, a

number of highly leveraged syndicates

are scheduled to reach maturity over the

next three to four years and further asset

disposals are likely.

PurchasersFollowing on from the re-emergence

of private investors in 2008, this cohort

was the main purchaser type in 2009,

accounting for 37.7% of transactions by

value. Private investors were active in the

sub AUD 60 million price category and

the average price transacted by private

investors was AUD 24.9 million with the

median transaction even lower at AUD

14.5 million. Approximately 36.9% of the

purchasers made by private investors

were in Victoria. These included 215

Spring Street (AUD 59 million) and 414

LaTrobe Street (AUD 49.5 million). In

contrast to other markets where private

purchasers were locally based, a number

of transactions in Melbourne were made

by overseas-based private investors.

Activity from private investors was strong

in Queensland, accounting for 8.6% of

total purchases or AUD 322.8 million,

including the HSBC Building at 300 Queen

Street (AUD 109.65 million) and the ICB

Centre at 15 Butterfield Street, Herston

(AUD 67.5 million).

The investment case for Australia

was strong in 2009. Around 22.5%

of transactions recorded an offshore

purchaser (private and institutional).

The strong macroeconomic environment

and excellent market transparency

were highlighted by offshore investors

seeking to gain an exposure to the

Australian commercial property market.

The due diligence process increased as

offshore investors looked to reduce their

unsystematic risk, focusing on a number

of factors, including the employment base

and growth forecasts, income level and

growth and vacancy rates, as well as the

characteristics of the individual property.

Victoria (25.8%), the ACT (25.4%) and

New South Wales (25.3%) were the main

destinations for overseas investments

in 2009.

Deka Immobilien purchased two assets:

15 William Street, Melbourne (AUD

167 million), and the ATO building at 45

Francis Street, Northbridge, WA (AUD

95 million); while the Swiss-based AFIAA

purchased the Atrium at 60 Pyrmont

Street, Pyrmont, NSW (AUD 137 million).

Asian interest remained strong with

notable purchases including 20 Hunter

Street, Sydney (AUD 77 million) by CLSA.

In the second half of the year,

opportunistic offshore groups realised that

they had to realign their pricing as the

stock started to dry up and funds started

to recapitalise. This, coupled with the

increase in value of the Australian dollar

against major currencies, has affected

the ability of some groups to invest into

Australia, and subsequently, we saw the

departure of some opportunistic investors.

Sales campaigns

in late-2009 and

early-2010 showed

the first signs of the larger

A-REITs and Wholesale trusts

seeking to re-enter the investment

market. Many of these groups came to

the market with strong ‘buy’ mandates

from their investors with their major debt

issues behind them. A-REITs accounted

for 11.0% of the purchaser type by

value, but this figure was inflated by the

Commonwealth Property Office Fund

purchasing 145 Ann Street, Brisbane

(AUD 208.1 million) and a 50% stake of

54–58 Mounts Bay Road, Perth (AUD 95

million) in late 2009.

Prior to the current downturn, the last

major correction in property values

happened in the early 1990s. After that

downturn, syndicates became a preferred

vehicle with defined investment periods,

set distributions, struck interest rates

and, on occasion, established hedging

strategies. The market upswing between

2004 and 2007 led to an evolution in the

type of syndicated vehicle with a number

of open-ended syndicates comprising

of multiple properties diversified across

0% 10% 20% 30% 40% 50%

UnlistedProperty Trusts

Private Companiesand Investors

Offshore Investors

Developers /Property Companies

A-REITSSyndicatesInstitutions

Others

Buyer Vendor

Figure 5: Buyer and Seller Types in 2009


sectors and financed through mortgage

backed securities and mezzanine debt

products. Syndicates accounted for 10.2%

of transactions in 2009, but there was

a return to the single building syndicate

of the early 1990s focused on yield and

potential for income growth (Figure 5).

ProductInvestors remained risk-conscious in 2009

and focused on income return, especially

as yield decompression continued through

the first half of the year. Investors do

not earn income on empty space and

transactional evidence suggests that

investors did not value vacant space when

purchasing assets in 2009. This sentiment

was also reflected in the lending practices

of major lenders. The ability to access

debt financing was difficult and assets

that had moderate to high levels of risk

were problematic to finance. Therefore,

investors typically avoided assets that had

a higher vacancy risk or short weighted

average lease expiry (WALE) and looked

for assets with a strong tenant mix and

income growth potential.

0

0.05

0.1

0.15

0.2

0.25

0.3

VIC QLD NSW ACT WA SA25,000,000

27,500,000

30,000,000

32,500,000

35,000,000

37,500,000

40,000,000

42,500,000

Total Share Average Transaction Size

Share of Transactions Average Value

Figure 6: Transactions by Market and Average Value


Some of the characteristics of assets that

investors have typically been searching

for include:

Prime or good quality B grade assets;•

Strong covenant to blue chip tenant(s) •

or public sector occupiers;

Well structured , long weighted average •

lease expiry;

Attractive income growth potential •

through fixed rental increases;

Showed good value with the potential •

for medium-term yield compression; and

In some cases, repositioning potential.•

Breaking down the sales by market,

investment activity in Victoria and

Queensland was relatively firm, in part

reflecting the availability of assets as the

price point desired by private investors.

Furthermore, the vendor was typically

an unlisted property trust or A-REIT that

had an investment strategy to dispose of

assets in non-core locations.

Comparing the different states, Victoria

and Queensland accounted for 27.7%

and 21.3% of all transactions by value.

This was followed by New South Wales

(19.5%), ACT (12.9%), WA (10.3%) and

SA (8.3%) (Figure 6).

There was a reduction in the volume

of larger transactions in excess of AUD

100 million. Financial institutions were

unwilling to take on such large exposures,

and there was limited evidence of

syndicated lending. Furthermore, a higher

proportion of equity was required to fund

purchasers compared with the 2004–2007

period. As a result, there were only seven

transactions above AUD 100 million in

2009, compared with an average of 13

transactions between 2003 and 2007.


YieldsYield decompression that started in 2008

continued through the 1H09, before

slowing in the second half of the year.

It appears that the process of yield

adjustment has occurred for prime assets.

A cyclical reversal of rental growth, rising

vacancy and rising risk premium for

commercial property (and other asset

classes) were the main drivers pushing

yields higher in 2009. Through 2H09,

the clouds around each of these factors

started to lift. Rents stabilised in the

financial centres (Sydney and Melbourne),

while the rate of decline is slowing in the

resource-dominated markets (Brisbane

and Perth), vacancy pressures are starting

to moderate with the cyclical vacancy peak

being revised down, while risk aversion on

many indicators such as corporate bond

spreads, appear to be subsiding.

Since peaking in 4Q07, yields have

softened across all markets by between

175 and 200 basis points for prime assets.

The exception is Canberra where prime

yields have moved out by an average of

125 basis points. Investor risk aversion is

highlighted by the disproportionate interest

in the Canberra market from offshore

investors and domestic private investors

who have sought out counter cyclical

opportunities with strong covenants, long

lease terms and high NABERS energy

ratings. In this regard, there are few

commercial markets in the world with

characteristics similar to Canberra.

The current downturn highlighted the

‘mispricing’ of risk in the commercial

sector, cumulating in the spread between

prime and secondary assets compressing

to the tightest level on record in late-2007.

Greater yield decompression has been

recorded for secondary assets, and in

most markets, the re-establishment of the

historical prime/secondary yield spread

has occurred (Table 1).


100

200

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400

500

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700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Basis Points

SydneyMelbourneBrisbane PerthAdelaide Canberra

Figure 7: Equivalent Investment Yields and Real Bond Rate Spread


Australian CBD office markets have

shown a strong positive relationship with

the inflation-adjusted bond rate. The

market downturn and rising investor risk

aversion resulted in prime equivalent

yield decompression and a rise in the

risk premium. The real bond rate has

stabilised slightly below 3.00%, resulting

in an implied risk premium above the

long-term average in all CBD office

markets (except Canberra) (Figure 7).

Based on this valuation benchmark, prime

assets are in fair value to cheap territory

and we expect the historical risk premium

to be re-established in 2010 and 2011 as

investor confidence increases.

Market BalanceThe national vacancy rate increased by

2.5 percentage points to 8.0% in 2009.

As the CBD office markets approach a

point of inflexion, the headline vacancy

rate remains within the 7% to 8% band

generally regarded as equilibrium for the

national markets. Completions across the

national office markets peaked in 2009

with approximately 659,200 sqm

of new and refurbished space entering

the market.

2009 was a year of two halves for the

Sydney CBD office market. Negative

net absorption was recorded in 1Q09

and 2Q09 as tenants contracted and

sub-lease availability continued to rise.


The market recorded four successive

quarters of negative net absorption (3Q08

to 2Q09) totalling 194,700 sqm, or 4.1% of

total stock. From a demand perspective,

conditions in the Sydney CBD were

weaker than the early 1990s. However,

the rise in vacancy was stemmed by a

reduction in total stock. Vacancy rose

from 7.5% in 2008 to 8.9% in 2Q09

before tightening to 8.2% by year-end as

the tentative recovery in tenant demand

resulted in positive net absorption (22,100

sqm) for 2H09.

From a demand perspective, Melbourne

was the stand out performer. Net

absorption totalled 64,000 sqm in 2009 led

by pre-commitments to new developments

and the continued net flow of tenants

from the fringe and suburban markets to

the CBD. Vacancy increased from 5.3%

in 2008 to 6.4% in 2009 as backfill space

became available from the completion of

153,200 sqm during the year.

After an extended period of below average

vacancy, completions totalled 222,200

sqm in the Brisbane CBD, equating to

12.3% of total stock. Approximately 80% of

the space was pre-committed or leased by

year-end and net absorption was 63,600

sqm. However, restrained tenant demand

for backfill space resulted in vacancy rising

by 6.4 percentage points through the year

to 10.2%.

Similar to Brisbane, completions in the

Perth CBD were strong (92,200 sqm),

pushing the headline vacancy rate out to

7.7%. Negative net absorption (–7,100

sqm) was recorded in 2009, although there

was a noticeable turnaround in sentiment

in the second half of the year with the

approval of the Gorgon Gas development

precipitating a strong recovery in leasing

enquiry.

With a moderate development pipeline

and soft tenant demand, vacancy in

the Adelaide CBD drifted out by 4.4

percentage points through 2009 to 8.2%.

Despite the rise in vacancy, the current

figure remains below the 10-year average

(8.8%).

Canberra recorded another year of strong

completions in 2009 (99,900 sqm). Tenant

demand was subdued in 1H09, but

recovered in the second half of the year as

the growth in the public sector translated

into positive net absorption. Vacancy

peaked at 9.4% in 2Q09, before tightening

to 8.5% by year end (Figure 8).

0% 2% 4% 6% 8% 10% 12%

Melbourne

Perth

Adelaide

Sydney

Canberra

Brisbane

National

Dec-07 Dec-09

Figure 8: CBD Office Markets, Vacancy Rates


2010 will continue the strong ending to 2009, which marked the return of A-REITs and Superannuation funds to the investment market. This, combined with the continuation of offshore buyers looking to gain exposure to the Australian commercial market, will see the depth of demand for prime assets continue to increase. The recent campaign for RBS Tower @ Aurora Place provided an insight into the level of investor demand for a rarely traded premium asset.

The fundamentals of the Australian office markets remain positive and the prospect of yield tightening over the short to medium term as historical relativities are restored is expected to drive total returns above the long-term benchmark in Sydney and Melbourne.

John Talbot Head of Capital Markets – Australia

Market FundamentalsYields – The outlook for prime yields

has improved as rents approach the

trough in the current cycle. In previous

market recoveries, investment yields have

tightened on the expectation of rental

growth. Furthermore, yields over-correct

during market downturns. Valuation

benchmarks such as the spread between

the property yield and the real bond rate

indicate that prime assets in CBD office

markets are in cheap territory with the

risk premium between 40 (Adelaide)

and 110 (Melbourne) basis points above

the 10-year average. The exception is

Canberra where counter cyclical drivers

and a re-rating of the market have

ensured that investor activity remains

strong.

Base Office Demand – There has been

an improvement in the lead indicators

for office demand in late-2009. The NAB

monthly Business Survey (February 2010)

showed that confidence rebounded to an

eight-year high, while the employment

component of the survey continues to

improve and is now above long-term

averages. Furthermore, the ANZ Job

Advertisements Series (February 2010)

noted that job advertisements troughed

in July 2009 and were up 28% through

February. The improvement in these

surveys is reflected in Access Economics

outlook for employment growth in the

finance and insurance and property and

business services sectors at 3.2% and

4.1% in 2010.

The upturn in business confidence

precipitated a recovery in leasing enquiry

figures. All markets recorded increased

enquiry levels in the second half of

2009, and leasing activity is expected

to improve as tenants take advantage

of the softer rental market conditions

and the availability of prime contiguous

space to upgrade or consolidate their real

estate requirements. Consequently, net

absorption across the CBD office markets

is forecast at between 225,000 sqm and

275,000 sqm in 2010, above the 48,400

sqm recorded in 2009.

Supply – Total completions across CBD

office markets in 2010 are forecast to

be strong at 622,500 sqm, slightly down

from the levels recorded in 2009 (660,000

sqm). Almost 55% of the space under

construction is pre-leased. Completions

are forecast to be strong in Canberra

(160,100 sqm), Perth (136,500 sqm),

Sydney (126,500 sqm) and Melbourne

What does 2010 hold? (118,200 sqm). Completions will slow

from the record levels in Brisbane

(72,900 sqm), while there is minimal new

development in Adelaide (5,420 sqm).

Access to development finance remains

difficult while major occupiers have been

reluctant to pre-commit. Furthermore,

the rise in capitalisation rates has raised

the rent required for developer feasibility

models. Only seven new developments

in excess of 10,000 sqm commenced

in 2009 and given a lead time of 24–30

months for a major CBD development,

short to medium-term supply additions

are forecast to be relatively benign. At the

onset of the credit crunch in late-2007,

Jones Lang LaSalle Research forecast

supply additions of 1.48 million sqm

between 2011 and 2013, a figure which

has been revised down to 763,000 sqm in

our current forecasts.

Vacancy Rates – At 8.0%, the vacancy

rate remains within equilibrium for the

national office market. Over the next 12

months, vacancy is predicted to rise and

reach a cyclical peak between 9.0% and

9.5%. Tenants are starting to upgrade from

secondary to prime space and similar to

previous cycles, vacancy will be displaced

to poorer quality secondary-grade assets.


Vacancy Rate

0

10

20

30

40

50

60

0% 5% 10% 15% 20% 25%

Incentives (Months Rent Free on a 10-Year Lease)

2009

2012 F

Figure 9: Sydney CBD Vacancy Rate and Incentives


Effective Rents – Prime gross effective

rents appear to have reached the trough

in the financial centres (Sydney and

Melbourne) while the rate of decline is

starting to slow in the resource-dominated

markets (Brisbane and Perth). There is

a strong positive correlation between

vacancy and incentives in Australian

office markets. The following chart shows

quarterly observations over the past 25

years. The current levels of incentives in

the Sydney CBD office market are outliers

on the time series. Essentially, landlords

offered a higher level of incentive in 2009

to maintain occupancy rates and cash flow

over what was expected to be a protracted

downturn. As the market stabilises,

leasing incentives will ease to a level more

attuned to market fundamentals in Sydney

(and Melbourne), resulting in positive

effective rental growth from late-2010

onwards. The correction in Brisbane

and Perth effective rents is expected to

continue for a further 12 months, before

stabilising in 2011(Figure 9).

Buyer ProfileThe relative strength of the Australian

economy has not gone unnoticed by

domestic and overseas property investors

and it is evident that distressed quality

prime assets will not appear on the

market. Furthermore, risk premiums

for prime assets are above historical

benchmarks and the prospect of rising

income in the medium term will attract a

greater depth to the buyer pool than the

last two years.

Sales campaigns in late-2009 showed

the first signs of the large A-REITs

and Wholesale trusts re-entering the

investment market to compete for rarely

traded prime assets. Most analysts

estimate that the A-REITs have raised

excess capital relative to optimal gearing

and acquisitions will be a key strategy for

larger A-REITs that are now focused on

growing portfolios to boost dividends to

shareholders. Nevertheless, the extent of

the debt refinancing task over the next few

years ensures that smaller A-REITs will

continue to be active vendors and look to

dispose of non-core assets.


The Australian investment market

continues to appear attractive for a

number of global property investors, with

the combination of a highly developed

and transparent real estate market and

solid fundamentals in comparison with

a number of mature markets in North

America and Europe. There are, however,

hurdles to entry. On a trade weighted

basis, the AUD rose 25.8% between

2008 and November 2009, and by 32.4%

against the USD. The appreciation of the

AUD may represent a hurdle for overseas

investors looking to gain exposure to the

Australian real estate markets.

The prospect of strong capital value

over the medium term will see overseas

institutions with global mandates target

Australia, but as other mature market

approach a trough in the value cycle and

start to offer stronger upside potential,

Australia may see a reduction in the level

of counter cyclical overseas investors.

As a result of growing institutional and

overseas interest, the total and average

value of transactions is predicted to

increase over the next 12 months. We

expect to see more transactions in excess

of AUD 100 million relative to 2008 and

2009, although it is unlikely it will be to the

level recorded between 2003 and 2007.

Private investors will continue to seek

out counter cyclical opportunities. As

the demand outlook continues to firm

and most markets have a moderate

development pipeline, the growing

competition amongst private investors will

encourage them to consider assets that at

the time of purchase offer some risk such

as vacancy, competition and lease expiry.

Even with a higher risk, these assets offer

the opportunity for innovative strategies to

maximise both capital and income returns.

A compelling case for the refurbishment

of secondary assets is emerging. Benefits

include tenant retention, increased income

and lower vacancy. The market is more

discerning regarding covenant, lease

term and the physical attributes of an

asset and refurbishment can amortise

the yield spread and owners can achieve

a significant return on investment

through a minor or staged refurbishment.

Consequently, property companies

and private investors will start to target

asset with refurbishment potential as the

year progresses.


Major Transactions Throughout 2009

Location: Adelaide

Sale Date: April 2009

Sale Price: AUD 76 million

NLA: 25,244 sqm

Rate: AUD 3,011 per sqm

Initial Yield (passing income): 9.67%

Vendor: AMP Life Ltd

Purchaser: GDI Property Group

A landmark office tower, 25 Grenfell Street is a 23-storey building positioned at the centre of the Adelaide CBD. This makes the property easily accessible through all forms of public and private transport, and is highly visible from the flight path. The AUD 76-million building has a total NLA of 25,244 sqm and sale rate of AUD 3,011 per sqm. It comprises basement car parking, a plaza, modern foyer, retail accommodation on the ground level and quality office accommodation from the 1st to the 23rd levels.

25 Grenfell Street

Location: Brisbane

Sale Date: June 2009

Sale Price: AUD 109.65 million

NLA: 19,167 sqm


Initial Yield (fully leased): 8.24%

Vendor: Colonial Office Fund

Purchaser: S.KW Pty Ltd

Commonly known as the HSBC Centre, 300 Queen Street is a 24-storey commercial office building that is prominently situated at the heart of the Brisbane CBD. The AUD 109.65-million building has a total NLA of 19,167 sqm and a price rate of AUD 5,721 per sqm. It comprises 18,213 sqm of Grade A office accommodation and 954 sqm of prime retail space adjacent to the Post Office Square.

300 Queen Street

Location: Newstead, Queensland

Sale Date: July 2009


NLA: 30,904 sqm



Vendor: FKP Commercial Developments Pty Ltd

Purchaser: Cromwell River Park Trust

Energex @ Gasworks is a landmark commercial and retail building. This development is currently under construction within the AUD 1-billion master-planned Newstead Riverpark mixed-use development. Targeting a six-star Green Star rating, the development will comprise basement car parking on two levels, retail accommodation on the ground level and office space on the upper six levels. Upon completion, the building will provide 28,614 sqm of commercial accommodation and 2,290 sqm of retail space. The purpose-built complex will accommodate Energex, which has fully leased the commercial component of the building as well as 252 car bays for an initial term of 15 years.

33 Breakfast Crek Road

Location: Genge Street, Canberra



NLA: 42,680 sqm



Vendor: QIC

Purchaser: Real IS

Commonly known as the Australian Tax Office Headquarters, the ten-storey office building is situated along Genge Street in Canberra. The property, which was completed in 2008, is part of the AUD 500-million redevelopment of Section 84 by Queensland Investment Corporation (QIC). It has a total NLA of 42,680 sqm and a sale rate of AUD 4,803 per sqm. The building includes two storeys of basement car parking, which has about 400 parking bays. Achieving a 4.5 NABERS rating, the property comprises 1,584 sqm of retail space and 41,096 sqm of office accommodation

Australian Tax Office Headquarters

Location: Melbourne

Sale Date: June 2009


NLA: 40,844 sqm



Vendor: AMP Capital Investors

Purchaser: Deka Immobilien

Known as 15W, 15 William Street is a 20-storey office building that is located at the heart of Melbourne’s high-profile financial district. It enjoys extensive frontage to William and Flinders streets, and Flinders and Custom House Lanes. The building, which was constructed in 1967 and completely refurbished and upgraded in 2006, currently provides Grade A office accommodation and incorporates parts of the ground floor for retail use and parking space. It has a total NLA of 40,844 sqm and a sale rate of AUD 4,089 per sqm.

15 William Street


Location: Docklands, Melbourne

Sale Date: April 2009

Sale Price: AUD 340.10 million

NLA: 8,019 sqm



Vendor: APN

Purchaser: Private Investor

A signature Grade A office building, 120 Harbour Esplanade is located within Melbourne Docklands – Australia’s premier commercial growth centre. The eight-storey property, which features a modern design and was completed in 2005, enjoys outstanding waterfront views and is securely leased to a high-profile blue chip tenant. The building, which has a total NLA of 8,019 sqm and a price rate of AUD 4,116 per sqm, provides 50 parking slots on the basement level.

120 Harbour Esplanade

Location: Northbridge, Perth

Sale Date: March 2009


NLA: 22,013 sqm



Vendor: Macquarie

Purchaser: Deka Immobilien

Accredited with a five-star NABERS energy rating, 45 Francis Street provides one of the largest floor plates in Perth. Constructed in 1992, the property offers a high level of income security with a lease to the Australian Taxation Office expiring in 2017. The property, which has a total NLA of 22,013 sqm and a sale rate of AUD 4,316 per sqm, comprises five levels of Grade A office space, a basement car parking and eight retail tenancies on the ground floor.

45 Francis Street

Location: Perth

Sale Date: March 2009


NLA: 11,911 sqm



Vendor: Macquarie

Purchaser: Private Investor

Enjoying high exposure to pedestrian traffic, 81 St Georges Terrace is located on the southern side of St Georges Terrace intersecting Howard Street. The property, which has a total NLA of 11,911 sqm and a sale rate of AUD 3,190 per sqm, comprises office space on the upper 11 levels, a retail space on the ground level and a basement parking on the lower ground level.

81 St Georges Terrace

Location: Sydney



NLA: 10,328 sqm



Vendor: Dexus Property Group

Purchaser: Abacus Property Group

Heritage-listed 343 George Street is a ten-storey commercial office building situated on the south-west portion of the CBD core precinct, which enjoys direct frontage to George and Barracks Streets. The 1,169 sqm site, which was completed in 1925 and refurbished in 2006, has a total NLA of 10,328 sqm and a sale rate of AUD 5,325 per sqm. It comprises 834 sqm of retail space on the ground level and 8,450 sqm of office space, with the remaining area comprising lower ground and basement accommodation.

343 George Street

Location: Pyrmont, Sydney

Sale Date: November 2009


NLA: 19,790 sqm



Vendor: Charter Hall Group

Purchaser: AFIAA Foundation for International Real Estate

Completed in 2006, ‘Atrium’ or 60 Union Street is located in Pyrmont, Sydney. The property comprises an eight-storey commercial building, a four-storey terrace building and a retail space on the ground floor and lower ground floors. The eight-storey tower is allocated for office space, while the four-storey terrace building that fronts Union Street comprises retail space on the lower ground floor and office space on three floors. The building, which was accredited with a four-star NABERS rating, has a total NLA of 19,710 sqm and a sale rate of AUD 6,923 per sqm. It comprises two levels of basement parking with 182 parking slots.

60 Union Street

All Office Transactions – 2009

Property Name Address Suburb Month Sale Price Initial Yield NLA (sqm) Rate ($ per sqm) Vendor Purchaser

New South Wales

61-79 Quay Street Haymarket Feb $38,000,000 N/A Site N/A NGI Investments Metroland Australia Limited

379-381 George Street Sydney Feb $24,000,000 N/A Site N/A Derisi Pty Ltd Terra Australis Property Fund

1 Bligh Street Sydney Feb $210,000,000 N/A Site N/A Dexus Property Group Cbus Property

50 Margaret Street Sydney May $40,500,000 10.20% 8,722 $4,643 Challenger Hybrid Fund Phillip Wolanski

Kindersley House 33 Bligh Street Sydney Jul $75,000,000 N/A 18,241 $4,752 Investa Funds Management Ltd Energy Australia

343 George Street Sydney Jul $55,000,000 8.25% 9,932 $5,538 Dexus Property Group Abacus Property Group

Macquarie Place 45 Macquarie Street Parramatta Jul $15,000,000 N/A Site N/A Becton Property Group Crown International Holdings Group

54 Park Street Sydney Aug $50,000,000 10.00% 15,950 $3,135 PBL Property Pty Ltd AMP Capital Investors Limited

505-523 George Street Sydney Oct $85,000,000 9.52% 16,554 $5,135 Challenger Coombes Property Group

The Atrium 60 Union Street Pyrmont Nov $137,000,000 7.33% 16,800 $6,919 Charter Hall Core Plus Office Fund AFIAA Foundation for International Investments

AMP Building 20 Hunter Street Sydney Nov $77,000,000 7.90% 9,942 $7,745 Grosvenor Group CLSA

25 Smith Street Parramatta Nov $48,400,000 7.54% 11,058 $4,377 Grosvenor Group Private Investor

234 Sussex Street Sydney Nov $46,000,000 8.30% 10,020 $4,591 Stockland Property Group Clipper Property Group

93 George Street Parramatta Dec $18,500,000 10.48% 7,217 $2,896 Becton Office Property Fund No. 2 Quintessential Constructions

Victoria

457-471 Bourke Street Melbourne Jan $34,000,000 9.19% 15,132 $2,247 Macquarie Direct Property Fund Manhattan Investments

Chandler McLeod 473-481 Bourke Street Melbourne Feb $42,000,000 5.38% 9,290 $4,521 473 Bourke Street Pty Ltd Royal Automotive Club of Victoria

1 Spring Street* Melbourne Apr $65,200,000 7.73% 31,776 $4,115 Australian Prime Property Fund Henroth Group

IOOF Centre 303 Collins Street Melbourne Apr $56,000,000 10.17% 20, 591 $2,720 Macquarie Direct Property Fund Phileo Australia Limited

Victoria Point Docklands - Stage 1 120 Harbour Esplanade Melbourne May $33,010,000 8.60% 8,019 $4,116 APN Direct Property Fund Private Investor

15W 15 William Street Melbourne Jun $166,500,000 8.73% 40,400 $4,121 AMP Australian Core Property Portfolio Deka Immobilien Investment

Victoria Police 412 St Kilda Road Melbourne Jun $42,000,000 9.57% 16,285 $2,579 ING Office Fund Private Syndicate

369 Royal Parade Parkville Jun $19,930,000 11.80% 8,676 $2,297 Investa Property Group Riverlea

Aviva House 509-511 St Kilda Road Melbourne Jul $55,000,000 9.72% 19,687 $2,794 Dexus Wholesale Property Fund Calibre Capital

215 Spring Street 209-227 Spring Street Melbourne Aug $59,000,000 8.50% 15,500 $3,806 Colonial First State (Private Investor Fund 1) Knowles Group

Australian Tax Office 990 Whitehorse Road Box Hill Aug $43,800,000 11.47% 26,650 $2,121 ING Office Fund Glorious Sun

C100 100-106 Leicester Street Carlton Aug $29,800,000 N/A 7,000 $4,157 Blue Earth Developments Pty Ltd Melbourne University

456 Lonsdale Street Melbourne Aug $27,000,000 7.93% 8,226 $3,282 Maquarie Direct Property Fund Undisclosed

344-350 Collins Street Melbourne Sep $52,250,000 9.80% 17,800 $2,935 Orchard Commercial Office Fund Private Investor

Doncaster Corporate Park Stage 1 605 Doncaster Road Doncaster Sep $17,300,000 N/A N/A N/A Mirvac Real Estate Investment Trust Undisclosed

Customs House 414 La Trobe Street Melbourne Oct $49,500,000 9.36% 14,415 $3,434 New Star Asset Management Juilliard Group

883 Whitehorse Road Box Hill Oct $24,300,000 8.17% 7,237 $3,358 Blackrock Undisclosed

128 Exhibition Street Melbourne Oct $15,000,000 8.48% 4,778 $3,139 AMP Capital Investors Salvest Capital

606 St Kilda Road Melbourne Nov $23,750,000 10.01% 8,659 $2,731 Becton Office Property Fund Private Investor

446 Collins Street Melbourne Nov $18,300,000 7.80% 5,350 $3,421 Becton Investment Management H & TSC Pty. Ltd.

Owen Dixon Chambers West 525-539 Lonsdale Street Melbourne Dec $54,000,000 N/A 19,000 $2,842 Private Investors Barristers Chambers Limited

* 50% Stake

2009 Major Transactions (greater than AUD 15 million)



Queensland

321 Montague Road West End Feb $20,120,000 N/A N/A Site Energex Mirae Asset

ICB Central 15 Butterfield Street Herston Mar $67,500,000 7.70% 11,254 $5,998 Mirvac Domaine SEQ Growth Fund Bergh Pty Ltd

380 Queen Street Brisbane Apr $19,000,000 7.18% 4,359 $4,359 Aria Securities Pty Ltd Mineralogy Pty Ltd

159 Coronation Drive & 5 Cribb Street Milton May $21,060,000 8.78% 5,371 $3,921 Becton Diversified Direct Property Fund Private Investor

HSBC Building 300 Queen Street Brisbane Jun $109,650,000 8.14% 19,167 $5,721 Commonwealth Property Office Fund S.KW Pty Ltd

Energex Building 33 Breakfast Creek Road Newstead Jul $173,000,000 7.73% 30,904 $5,598 FKP Property Group Cromwell Riverpark Trust

157-163 Ann Street Brisbane Aug $21,500,000 9.84%* 6,679 $3,219 Macquarie Direct Property Fund City of Brisbane Investment Corporation

164 Grey Street South Brisbane Aug $15,000,000 9.17% 3,079 $4,872 Mirvac Funds Ltd Renweed

410-414 Queen Street Brisbane Sep $23,800,000 10.96% 5,878 $4,049 Trinity Enhanced Return Fund Undisclosed

National Bank Central 180 Queen Street Brisbane Sep $22,000,000 N/A 3,652 $6,024 Mirvac PFA Diversified Property Fund Private Investor

400 Queen Street Brisbane Oct $15,750,000 6.53% 3,989 $3,948 Trinity Enhanced Return Fund Private Investor

State Service House 96 Albert Street Brisbane Oct $15,250,000 5.22%* 3,341 $4,565 Devine Ltd Undisclosed

King George Central 145 Ann Street Brisbane Nov $208,100,000 8.00% 27,820 $7,534 Leighton Properties Pty Ltd Commonwealth Property Office Fund

Centenary Square 108 Wickham Street Fortitude Valley Nov $63,500,000 8.89% 11,885 $5,343 Fortius Fund Management Pty Ltd Primewest

Western Australia

St Georges Centre 81 St Georges Terrace Perth Mar $38,000,000 6.33% 11,910 $3,191 Macquarie Bank Nick Tana

ATO 45 Francis Street Northbridge Apr $95,000,000 9.80% 22,013 $4,316 Macquarie Bank Deka Immobilien Investment

Phillips House 53 Ord Street West Perth Jun $41,500,000 7.74% 6,864 $6,046 Commonwealth Property Office Fund Primewest Management

1100 Hay Street West Perth Jun $38,000,000 9.34% 7,244 $5,246 Macquarie Bank (Macquarie Office Trust) Private

State One House 172-176 St Georges Terrace Perth Jun $35,000,000 10.41% 6,265 $5,586 GE Real Estate Investments Undisclosed

Alluvion 54-58 Mounts Bay Road Perth Nov $95,000,000 7.59% 22,395 $8,484 Charter Hall Opportunity Fund (No. 4) Commonwealth Property Office Fund

South Australia

Australian Taxation Office 81-97 Waymouth Street Adelaide Jan $51,000,000 9.16% 17,878 $2,853 Trust Company of Australia Ltd KTS Properties Pty Ltd

Chesser House 91-97 Grenfell Street Adelaide Jan $34,500,000 8.90% 11,483 $3,004 Stocklands Chesser Properties Pty Ltd

Naylor House 191 Pulteney Street Adelaide Feb $49,000,000 9.22% 16,000 $3,062 Macquarie Office Trust Perpetual Trustee Co Ltd

Grenfell Centre 25 Grenfell Street Adelaide Apr $76,000,000 9.49% 25,244 $3,011 AMP Life Ltd GDI Property Group

115 Grenfell Street Adelaide Aug $41,000,000 9.90% 13,238 $2,949 Investa Diversified Office Fund Grenfell 115 Pty Ltd

80 King William Street 70-80 King William Street Adelaide Oct $21,750,000 9.69% 8,105 $2,684 Trinity Funds Management Limited Peter Tunno

Conservatory on Hindmarsh 131-139 Grenfell Street Adelaide Nov $16,400,000 8.1% 4,050 $4,049 Grenfell East Century Funds Management

* Equivalent Yield



ACT

38 Akuna Street City Jan $22,000,000 N/A 12,522 $1,757 MacarthurCook Office Property Trust Amalgamated Property Group

62 Northbourne Avenue City Feb $38,000,000 8.51% 10,218 $3,719 Investa Property Group Credit Suisse Real Estate Fund International

Industry House 10 Binara Street City May $123,000,000 7.73% 28,250 $4,918 AMP Capital Wholesale Office Fund Andrew Roberts

ATO Stage 2 Genge Street City Jul $205,000,000 7.10% 48,045 $4,163 QIC Real I.S.

64 Allara Street City Jul $18,500,000 8.00% 3,154 $5,866 Orchard Funds Management Australian Ethical Investment

Northbourne Avenue Offices 82 Northbourne Avenue Braddon Nov $44,000,000 6.95% 6,799 $6,472 Melvip Undisclosed (Private Investor, Australia)

Perpetual Trustee 10 Rudd Street City Nov $18,700,000 9.52% 4,739 $3,946 Mirvac Real Estate Investment Trust Strada Pty Ltd

* Equivalent Yield

Authors

John Talbot Head of Capital Markets, Australia

+61 2 9220 8486

[email protected]

John Talbot is the Australian Head of Capital Markets at Jones Lang LaSalle. John is a 25-year veteran of

the commercial property industry in Australia with a background in institutional valuations, consulting, agency

and in more recent years major investment sales.

As the leader of the his firm’s Capital Markets business, John has been involved in some of the largest

investment transactions in Australia over many years including Chifley Tower and Aurora Place in Sydney,

the Melbourne Central complex in Melbourne, Central Plaza in Brisbane and Central Park

in Perth.

Andrew Ballantyne Associate Director, Research

+61 3 9672 6554

[email protected]

Andrew joined Jones Lang LaSalle in July 2007 and is an Associate Director within the national research

division. He is responsible for managing the provision of strategic research services to all of Jones Lang

LaSalle’s Victorian business lines and for conducting primary research on the national office markets.

Andrew also undertakes consultancy assignments across the property sectors for overseas and domestic

clients and is a key resource for the Jones Lang LaSalle: Real Estate Intelligence Service.

Andrew is an experienced industry researcher with over nine years experience in the property and transport

and logistics industries. Andrew holds a Bachelors degree in Business Economics (with honours) and a

Master of Applied Research.

COPYRIGHT © JONES LANG LASALLE 2010 All rights reserved.

www.joneslanglasalle.com.au

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Documents

JLL Australia Office Market Investment Review Apr 2010