This article is from the Australian Property Journal archive
GLOBAL investors continue to favour Melbourne and Sydney, ranking the cities second and third respectively as targets in the year ahead.
According to the Colliers International’s 2016 Global Investor Outlook report, despite being relatively small property markets compared to London and New York, Melbourne and Sydney ranked as favoured destinations in 2016 with London taking out top spot.
Colliers managing director of capital markets and investment services John Marasco said the findings are consistent with global capital flows data for 2015, which currently ranks Sydney third behind London and Manhattan.
“Sydney is considered a global gateway city so for investors it ranks up there with New York, London, Singapore and the like in terms of being an attractive destination for investment,” Marasco said. “Melbourne is not far behind, and is seen as a good alternative to Sydney.
“Tenant demand is improving in both Sydney and Melbourne, with rental growth now occurring and vacancy rates reducing. This only adds to the appeal of these markets,” he added.
Real estate investment volumes continue to increase and in 2015 are set to be the highest level ever recorded. Domestic investors continue to dominate direct real estate investment volumes, however a third of total investment currently comes from offshore. China is now the largest offshore investor in Australian commercial property.
“Right now, Australian investors prefer to invest locally and we see very little investment offshore,” Colliers national director of research Nerida Conisbee said. “This is very different from the previous cycle where Australia was the third strongest investor globally.
“This is beginning to change, with Australian superannuation firms starting to purchase properties offshore. It is, however, unlikely that we will see the same levels of offshore investment as we saw previously,” she predicted.
The survey found the majority of Australian investors in commercial property continue to buy property directly, as opposed to going in a joint venture with another company.
“The exception to this is if they are looking offshore,” Conisbee said. “In this case, a joint venture is generally established with a local group to take advantage of their expertise and potentially development pipeline in their own market.
“Similarly, although direct investment volumes into Australian real estate from offshore groups is high, many groups also prefer to joint venture with established Australian institutions. Almost all of them have received significant capital from large pension or sovereign wealth funds over the last five years,” Conisbee said.
Meanwhile the majority of investors in Australia and New Zealand continue to use debt to fund their expansion plans, although the level of debt is expected to remain low with most planning to use at least 50% equity.
“Although overwhelmingly positive about the market, Australian and New Zealand investors remain risk averse. Very few are prepared to take on higher levels of risk to achieve higher returns. In that respect, they are among the most risk averse investors globally,” Marasco said.
Australian Property Journal
