Foreign investors just getting started
The level of foreign investment in Australian commercial property hit a record $10 billion last year and is not expected to peak any time soon as international buyers scan the local market and finance rates remain low.
An analysis of the 2016 transactions carried out by JLL for The Australian shows Singaporean buyers were particularly active during the year, leading two of the top three most valuable deals.
ARA Property Group paid Dexus $578 million for the Southgate complex in Melbourne in August. Final settlement is due by July. The riverfront complex is made up of the HWT Tower and IBM Centre, as well as a popular shopping centre and carpark.
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The Woolworths headquarters at Bella Vista, in Sydney’s northwest, was sold for $336.45 million to South Korea’s Inmark Group, while Singapore’s Ascendas-Singbridge paid $313.2 million for Innovation Place, at 100 Arthur St in North Sydney.
JLL estimates foreign companies were involved in 40% of total transactions last year. Offshore investors sold $2.2 billion worth of assets in 15 transactions over the 12 months.
JLL chief executive Stephen Conry also expects the overseas interest in Australian property to remain strong in the year ahead, despite growing valuations.
Australia has and will continue to resonate with foreign investors due to our consistent economic growth through cycles
“The offshore investors have accounted for a rising proportion of major transactions in recent years,” Conry says.
He says 2016 “was no exception, with foreign investors accounting for a record number of transactions across the Australian commercial property sector. We are detecting no decline in offshore interest in the Australian market, but the limiting factor is a scarcity of stock.”
“We are certainly finding that offshore investors are willing to broaden their mandates, both in terms of locations and sectors.”
Sydney’s diversified inner-city property market remains one of the best performing in the Asia-Pacific region after rents surged across the board in the past year.
A report by Colliers International found Sydney’s premium net effective rents rose 28.4% in the year to September, well above the 4.7% annual average growth rate over the past decade. A-grade rents jumped 27.8% while B-grade rents rose 33.7%.
Colliers says lower-tier Sydney rents were elevated because several buildings were acquired to make way for the NSW government’s infrastructure developments across the city.
Signed off: The biggest commercial property deals of 2016
Colliers International capital markets managing director John Marasco says Australia’s political stability means it will remain an international capital destination.
“It’s safe to say that 2016 has dealt its fair share of shocks to the global economy, with the standouts being Britain’s referendum to leave the European Union (Brexit) and a pending Trump presidency,” Marasco says.
“These economic shocks further cement Australia’s position as an appealing global destination for foreign capital deployment.
We are certainly finding that offshore investors are willing to broaden their mandates, both in terms of locations and sectors
“Australia has and will continue to resonate with foreign investors due to our consistent economic growth through cycles, transparent financial system, together with sound political and legal frameworks.”
JLL’s head of international investment Simon Storry says it is likely that Japanese buyers will provide the next wave of foreign capital into Australia.
The Japanese Government Pension Investment Fund decision to increase its risk appetite is expected to prompt it to look offshore and ramp up its commercial property exposure.
It has cut its holding of traditional low-risk bonds and analysts believe it will become more of an active international investor.
“Asian investors that remain the most active are from Singapore and China but we are starting to see a greater level of interest from Japanese firms, both from a debt and equity point of view,” Storry says.
“GPIF is reviewing its strategy for investment in property given the size of the fund. This alone could have a major impact on Japanese investment in Australia.”
This article originally appeared on www.theaustralian.com.au/property.