This article is from the Australian Property Journal archive
FOREIGN investment into Australia’s property market dropped by nearly a third amid global inflation, geopolitical instability and supply chain issues, although despite the challenges still turned in a respectable $10.52 billion over FY24 and is set to bounce back in the coming year.
M3 Property’s Foreign Capital Investment in the Australian Property Market for FY24 report showed overall was down heavily on the previous year’s $15 billion invested in the market.
Michael Coverdale, managing director, Queensland at M3 Property said the year ending June 2024 was notable for the changes in the mix of overseas investment sources into Australia.
“While our real estate market remains solid, it’s not as robust when compared with previous financial years. We’re seeing significant offloading of assets from countries facing their own economic headwinds as well as small capital allocations because of liquidity reasons.”
However, a positive change for the local property market is expected in FY25, amidst shifts in macroeconomic conditions here and around the world.
“With an Australian exchange rate favourable to cross-border investors and likely changes to the Reserve Bank of Australia’s monetary policy, along with interest rates already being lowered by central banks overseas and the improved cost and availability of global capital, international investment is likely to flow into Australia more freely this financial year,” M3 Property said.
Australia’s prime office market is already seeing some of the benefits of these changed global conditions. A joint venture between Singapore-listed companies UOL Group and Singapore Land Group acquired Brookfield’s half-stake in Sydney office tower 388 George Street at $460 million in the current financial year, while German-based Deka swooped on 333 George Street, also in Sydney, in a $395 million deal as the Sydney CBD leads the pack in terms of both positive leasing demand and capital market activity.
“All signs point to the debt and investment markets changing from a period of volatility to stability, and even growth, in a few of our core investment markets,” Coverdale said.
“This gives us some confidence that foreign investment will improve throughout FY25, most likely with a focus on retail, office and industrial asset classes, as the global economy steadily recovers from the less favourable conditions of previous years.”
Investors from the USA, China and Singapore have traditionally injected the most funds into Australian real estate, however changes in FY24 saw the re-emergence of Japan as a powerful investment force.
The USA held onto its number one spot for investment volumes in FY24 at $3.3 billion, followed by Japan at $2.43 billion, and then Singapore with 2.12 billion.
China, including Hong Kong ($1.6 billion) and Canada ($580 million) were next..
US investment and equity firms demonstrated a strong appetite for a wide range of property sectors in Australia – which has continued in FY25, with Hines, alongside Haben, party to the record-breaking $900 million acquisition of Westpoint Shopping Centre – while investors from Singapore and China preferred more traditional and core asset types such as retail, industrial and office.
Singaporean investors notably divested a large number of holdings from their portfolio.
Coverdale said Japanese investors are typically attracted to counter-cyclical opportunities, and became active in the Australian market once again in FY24 after a few years of inactivity. That has been headlined Mitsui Fudosan acquiring a circa 66% stake in Mirvac’s $2 billion 55 Pitt Street, Sydney project, while Nippon Steel Kowa Real Estate partnered with Lendlease on a $500 million build-to-rent tower in Melbourne’s Docklands, after the Australian property giant brought in Daiwa House to help develop its $650 million Melbourne Quarter build-to-rent tower at 646-666 Flinders Street.
“Importantly, some of our strongest and longest-term investors like those from the US, Singapore and Hong Kong are still actively seeking opportunities in this market,” Coverdale said.
The office sector experienced the most positive investment across the board in FY24, mainly due to high capital values and improving occupancy as COVID moves further back in the rear-view mirror, with $4.1 billion invested in office assets across 18 sales to investors from Japan, Singapore, Hong Kong, Malaysia and the USA.
Industrial proved popular with the second highest volume of transactions in FY24 and an acquisition volume nearly 50% higher than disposal volume. Investors from the USA, Canada, Hong Kong, Singapore and the Netherlands were the most active purchasers of this asset class.
Development sites saw$1.3 billion invested across 26 sales. Demand for retail assets tracked much lower than the other major sectors, consistent with residential and alternative housing assets, while alternative assets like non-core and hotel assets experienced substantially lower market activity.
Non-core assets were the only class with negative net investment from cross-border investors, reinforcing the international trends and demand for core asset types, Coverdale said.
