Yield-Hungry Office Buyers Turn to Sydney as Hong Kong Trails

  • Foreigners accounted for 40% of Australia office deals in 2016
  • Rental yields fall in 11 major cities, Savills says in report

Overseas investors snapped up a greater share of Australian office properties last year than any other country, as the nation’s proximity to China and 25-year run of unbroken economic growth lured yield-hungry buyers.

Foreigners accounted for 45 percent of Australian office deals in 2016, compared to just 14 percent in the U.S., according to real estate agency Savills’ twice-yearly report on global office yields released Wednesday.

With interest rates stuck near record lows in much of the world, office blocks have become a favored asset class for investors seeking higher returns than bonds, while still gaining a steady revenue stream. That’s compressed rental yields, which have fallen in the 11 major cities tracked by Savills.

Part of Sydney’s attractiveness lies in its status as the world’s top-yielding major city in 2016. Hong Kong, home to some of the world’s most expensive real estate, ranked last.

“Foreign investors are attracted to growth, and the Australian growth story is very compelling,” Tony Crabb, head of research at Savills Australia and the report’s author, said in an e-mail. Buyers are also lured by the nation’s commodity wealth, population growth, proximity to China and political stability.

“San Francisco is also a growth proxy, being a center of digital innovation and increasingly, finance,” Crabb said. “The possibility of accelerating economic growth in the U.S. also bodes well.”

In the U.K., confidence was initially “rocked’’ by the country’s vote to leave the European Union. Since then, there has been a shift from institutional investors to offshore private buyers, as the pound’s decline is seen compensating for the increased risk of tenants leaving or not wanting to commit to lengthy leases.