Office has remained the most attractive property asset class in Australia for offshore investors, accounting for 66% of total acquisitions in the first three quarters of this year.
This is one of the key takeaways from CBRE Research’s Capital Flows Q1-Q3 report, which examines investment activity in Australia and across the globe.
Offshore investors accounted for around 40% of all Australian property transactions, which is slightly above the long-term average according to Ben Martin-Henry, report author and CBRE head of capital markets research.
“Offices continue to be the top pick for overseas buyers, followed by industrial (22%) and retail (8%), while Sydney and Melbourne remain the preferred cities for capital deployment, having accounted for 44% and 35% of offshore spending respectively,” Mr Martin-Henry.
CBRE’s analysis highlights that the most acquisitive countries have been Singapore ($3 billion) and Germany ($1 billion) as GIC increased its share in Dexus’ Australian Logistics Trust and Deka acquired 452 Flinders Street in Melbourne.
China rounded out the top three list with a total outlay of circa $800 million, while notably absent were US investors, who have been inside the top three sources of offshore capital for the past decade.
Mark Coster, CBRE Pacific Senior Managing Director of Capital Markets, commented: “We expect to experience increasing levels of international capital flowing into the Australian and New Zealand markets in Q4 2020 and into 2021, despite ongoing travel restrictions. This will occur at both the real asset level and through fund level investments.”
Conversely, domestic investors have only acquired $460 million worth of offshore assets in 2020.
“Investment by Australian investors offshore has been very subdued since the highs of the GFC when many local investors suffered significant losses. Interestingly, in the seven years leading up to the GFC, Australian investors deployed circa $65 billion into overseas real estate, however, since then they have spent less than a third of this,” Mr Martin-Henry said.
Australian investors deployed circa $160 million into New Zealand, circa $150 million into the US and circa $80 million into Italy and the UK.
Other key points in the report include:
•$15.3 billion invested in Australia by both offshore and domestic investors, 46% down on the same period last year.
•Circa $7.8 billion invested into office, circa $4.6 billion invested into industrial and circa $2.1 billion invested into retail.
•Industrial transactions accounted for 31% of total sales, up from 15% in 2019. The sales tally was broadly in line with 2019
“Despite the year getting off to a stronger start than 2019, once the impact of the pandemic was felt in Australia, sales began to slow and most noticeably in the retail and hospitality sectors, as these have borne the brunt of the various lockdowns,” Mr Martin-Henry continued.
He added that the slowdown in sales volume was not unique to Australia, as global sales were down circa 35% on the same period last year.
“Over the past 20-years, the last quarter of the year has recorded on average 31% of the total volumes – which means that there is potential for overall transactions volumes to make up some lost ground,” Mr Martin-Henry said.
COMMENTARY FROM OUR SECTOR EXPERTS Flint Davidson, Head of Capital Markets – Office, Pacific
“The office sector will present the usual year-end run of transactions albeit, like the rest of 2020, volumes will be less than prior years. Transaction timeframes have increased due to longer due diligence periods and, in particular, significantly longer timeframes to clear FIRB. This is likely to push a number of transactions into Q1 2021.”
Simon Rooney, Head of Capital Markets – Retail, Pacific
“Transaction activity in Q4 is expected to gain momentum leading into 2021; however, total transaction volumes are forecast to remain below 2019 levels. The flight to non-discretionary retail has resulted in neighbourhood shopping centres dominating 2020 transaction volumes, while investor demand for shopping centres in excess of $250 million has waned, as a result of the COVID-19 impact on retailers not being fully quantified.”
Chris O’Brien, Head of Capital Markets – Industrial, Asia Pacific
“We are expecting that industrial and logistics transaction volumes will be broadly in line with 2018 and 2019; however, these results mask the nature of the deals. What we have seen throughout 2020 is a significant uptick in the number of internal transfers, such as GIC investing more capital into DALT and, more recently, Logos shifting $420 million worth of assets to the Singapore listed ARA Logos Logistics Trust. These types of transfers are expected to continue into 2021.”
Michael Simpson, Head of Capital Markets – Hotels, Pacific
“We expect 2020 will deliver a little over half of the transaction volume of 2019, with most trades below $100 million. While there is abundant capital seeking investment grade hotels, there is a wide gap between buyer and seller expectations. We anticipate a material increase to transaction volumes commencing at the end of H1 in CY 2021, as government stimulus measures diminish and investors have more visibility around the timing for recovery.”
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