The commercial property sector's stability is expected to bring continued foreign investment
The stability of Australia’s commercial property sector is expected to bring continued foreign investment amid a tough economic period.
Even as market-watchers debate the odds of Australia falling into a recession after the fastest series of rate hikes in decades, international institutions and investment funds continue to view the country as a safe haven for capital, according to a report by The Australian.
The value of approved investment proposals totalled $19.3 billion in the December quarter, according to Treasury data released last week. That’s up $4.1 billion from the prior period. At the current rate, foreign spending this year is set to outstrip the previous financial year, The Australian reported.
Offshore investors have accounted for about a third of all buyers of commercial real estate across office, retail and industrial over the past decade, according to JLL. Foreign investment’s share of total activity fell from 32% in 2021 to 26% in 2022, but halved in value terms thanks to lower overall transaction activity.
“Strong engagement”
Fergal Harris, JLL’s head of capital markets for Australia, said global investors were comfortable with the Australian market.
“We’re seeing very strong engagement from offshore capital building a case for investment, and we think that story will accelerate in the second half of 2023 when there is more clarity on where debt costs and valuations are likely to stabilise,” Harris told The Australian. “While both factors are taking a little longer than anticipated, we’re starting to see more opportunities arise as assets are brought to the market, mostly in the office market.”
Harris said the capital’s origins were “fairly diverse.”
“It’s coming in from all regions, seeking core-plus and value-add strategies,” he said. “While there is still some caution, especially towards assets of scale, we think that hesitancy will begin to recede over the next six months.”
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Dwight Hillier, managing director of valuation and advisory services at Colliers, told The Australian that instability in European and American markets had spurred investors to look to the Asia-Pacific, and particularly Australia, with commercial property becoming their main target.
“Trophy” markets
Ray White head of commercial research Vanessa Rader said the “trophy” office markets of Sydney and Melbourne had underpinned recent performance.
“During that COVID period and the last two years have been really, really strong,” Rader told The Australian. “A lot of that had to do with a number of very large office building transactions. What’s interesting is a large number of office transactions occurred during a time when the office market didn’t appear to be doing that well because we had a whole lot of concern in regard to occupancy and vacancy rates. Industrial was also really strong. However, we’ve seen that come back a little bit, and it probably will come back going forward.”
Rader predicted that international investment would continue to be strong, but perhaps not on the same level as previous years.
“We don’t have the massive supply fluctuations we do in other places,” she said.
Asian market an investment driver
Ross Lees, Centuria’s head of funds management, said that the Asian market – especially Singapore, Korea and Japan – would likely be the biggest investment driver this year.
“Cross-border interest has remained resilient – even in 2020-21 when our borders were shut, offshore investors comprised the majority of transactions,” he told The Australian. “These institutional investors take a long-term view and understand the relative attractiveness of the Australian commercial property market, which continues to be very attractive within the Southeast Asian landscape due to our political stability, market transparency, freehold investment structure and higher relative investment returns than other investment locations.”
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