This article is from the Australian Property Journal archive
AUSTRALIA is the fourth favourite investment destination in Asia Pacific, attracting $US27 billion in investments, and competition between local and offshore investors will continue to intensify.
According to Cushman & Wakefield, a record $US487 billion was invested in the real estate sector in the Asia Pacific region in 2013. China remained the hotspot with volumes of over $US358 billion invested.
Australia was in fourth position, witnessing a spike in interest from investors, experiencing a 19% in overall investment volumes to $US27 billion, with office (59%) and land (54%) seeing the highest growth year on year in 2013 over the previous year. Hotels (-6%), retail (-11%) and industrial (-6%) have seen a decline in investment in 2013 over the previous year.
In 2013, offices accounted for $US13.4 billion ($US8.4 billion in 2012); retail totalled $US6.7 billion ($US7.6 billion in 2012); industrial totalled $US2.6 ($US2.7 billion in 2012); hotel totalled $US1.6 billion ($US2.2 billion in 2012); development sites totalled $US2.5 billion ($US1.6 billion in 2012); and apartments totalled $US0.1 billion – inline with last year.
Cushman & Wakefield Australia managing director David Woolford said 2013 saw the greatest volume of transactions recorded in Australia since the onset of the GFC.
“Ultimately, the level of investment in 2013 could have been greater but for the severe lack of prime stock. We expect the market this year will record an even greater number of sales, as investors move up the risk curve in an attempt to secure assets,” Woolford said.
Meanwhile the Colliers International H1 2014 CBD Office Research & Forecast Report found more than $8.1 billion worth of Australian CBD offices changed hands in 2013, an increase of 16% on 2012.
Colliers capital markets and investment services managing director John Marasco said this was the highest level of investment since 2007 and reflects the increasing number of both local and offshore investors in the market.
“In 2014, it is likely that investment volumes will continue to increase with the main challenge, given the number of investors in the market, being lack of available stock,” he predicted.
According to the report, Australian and offshore institutions dominated investment and China emerged as the country with the strongest growth, purchasing $580 million of CBD office property in 2013.
Offshore REIT activity was another key trend, primarily because of legislative changes taking place globally. At present, Singapore and US REITs dominate investment in Australian commercial property. China and India are the two major countries in which REIT legislation is still not finalised.
“We also believe this will be the year that domestic purchasers make their presence known,” Marasco said. “We are already seeing local demand competing, and in some cases winning, against the force of the offshore investors and this is set to continue further in the year ahead. On the back of increased activity by A-REITs, superannuation funds and privates, we will start to see the pendulum swing towards the locals in 2014,”
With the amount of funds looking to invest in Australian commercial property and the subsequent competition for assets, yield compression is set to continue in 2014. Prime CBD office yields currently range from 6.75% in Melbourne CBD to 7.94% in Perth CBD. By the end of this year, Colliers forecast yields will become firm in all markets with the exception of the Perth CBD.
“In Sydney CBD, we saw a slight firming in secondary yields and a subsequent reduction in the yield gap in 2013. It is likely that offshore interest in secondary property was a driver of this.
“In 2014, we expect that the yield gap will narrow, particularly in Sydney and Melbourne CBDs. Interest from offshore developers is expected to be a major driver however more Australian institutions are expected to move up the risk curve and look more closely at these assets.
“The higher yields are likely to be attractive however the main reason will be strong competition for, and lack of availability, of prime stock,” he forecast.
Colliers national director of research Nerida Conisbee said the ‘disconnect’ between a strong investment market and a weak leasing market has been a key feature of Australian CBD office markets over the past two years.
“We now consider that incentives have peaked in most CBDs and prime net effective rental growth is likely to occur in all markets with the exception of Brisbane.
“Given that leasing markets have been challenged over the past two years, it is likely that stronger performance this year will further drive demand for assets and increase values,” she said.
Marasco said almost all indicators pointed towards increases in the amount of funds targeting Australian commercial property in 2014.
“Australia continues to be an attractive investment destination and provided that stock continues to come to market, total investment volumes should be greater in 2014 than they were in 2013,” he concluded.
Property Review
