Foreign buyers in one in three commercial property deals

by Nick Lenaghan  (afr.com – 30 August, 2017) 

Foreign investors accounted for one-third of commercial property deals in the first half of 2017.

The volume of transactions has eased as prices begin to peak, prompting a standstill between owners and would-be buyers.

Transactions in the 2017 first half – across the hotel, office, industrial and retail property sectors – totalled $10.8 billion. In the first half last year total sales were $15.6 billion and rose to $32.7 billion for the full year.

Asia remains a key source of offshore capital – about $US1.6 billion ($2 billion) of outbound capital from the region directly invested into the local commercial real estate market in the first half, on CBRE figures.

That represents a 25 per cent decrease on Asian investment in the 2016 first half. But it fell less slowly than the overall drop, with transaction volumes down by 37 per cent. “Foreign investment still accounted for approximately one-third of all activity in Australia’s commercial property sector, with demand for assets remaining strong given the higher yields and strong fundamentals demonstrated by the Sydney and Melbourne markets,” said CBRE research chief Stephen McNabb said.

The fall in investment activity was due to a lack of available stock rather than a decline in buyer interest, he said.

Australia ranked as the top destination for cross-border capital in CBRE’s latest survey on investor intentions.

Underlining the point, in April this year a wealthy buyer from Hong Kong bought the Australian Securities Exchange headquarters at 20 Bridge Street in Sydney for a record yield – below 4.5 per cent – for more than $330 million

In June, Singapore’s Keppel REIT outlaid $348 million to take a half stake in a new police HQ in the Melbourne CBD.

Asian appetite is holding up into the second half as well, with diversified developer Mirvac selling a half stake in a landmark Collins Street office development in Melbourne to Singapore’s Suntec REIT for $414 million.

“At this stage of the yield cycle, which is nearing its peak in Australia’s major markets, and with a reasonable immediate outlook for rent growth, there isn’t a compelling reason to sell assets,” Mr McNabb said.

“From an investment perspective, assets remain eagerly sought after and this is evident in further yield compression across all assets classes nationally in the first half of 2017.”

Some $US45.2 billion of Asian outbound capital was directly invested into global property in the first six months of 2017, on CBRE figures.

That represents a 98.4 per cent uplift on the $US22.8 billion allocated in the first half of 2016.

A slowdown in Chinese investment offshore is expected in the immediate aftermath of a a central government move this month to control investment flow abroad more strictly.

The logistics sector however may become the beneficiary, with the new rules designating logistics as an investment target to be encouraged.

01 Sep 2017