Offshore and domestic capital compete for Australian commercial property asset
Offshore and domestic capital compete for Australian commercial property assets
| 14 July 2016
Offshore buyers tipped $3 billion into Australian commercial property in H1 2016 – accounting for 29% of transactions during the period.
While this was down on the record 41% share in the same period last year, CBRE’s Head of Research, Australia, Stephen McNabb said the numbers highlighted that Australia had performed favourably compared to global markets.
“While offshore capital inflows to Australia were down by 18% in the first half relative to the same period last year, this compares favourably to what we’ve seen globally, with cross border investment having declined by ~30% over the same period,” Mr McNabb said.
He noted that investing was a “relative game” and, given that Australia was directly removed from the significant economic impacts as a result of the Brexit vote, markets with strong fundamentals, such as Sydney and Melbourne, should perform well relative to global benchmarks.
“Our expectation is that inflows could strengthen moving forward as risks increase offshore – particularly in leading cities such as Sydney and Melbourne, which are underpinned by strong market fundamentals,” Mr McNabb said.
CBRE Executive Managing Director, Capital Markets, Mark Granter said one constraint on activity in H1 had been a lack of purchasing opportunities, particularly in Melbourne.
“Buyer demand, particularly from offshore groups, is still very strong as highlighted by the interest we fielded with recent campaigns including 140 Sussex, 1 Shelley and 380 La Trobe Streets,” Mr Granter said.
“The main focus is on core assets or assets with strong WALE’s of six years plus, where we have seen cap rate compression this year in the order of 25 to 30+ basis points.”
CBRE National Director, Capital Markets, Josh Cullen added that it was also evident that local groups had adjusted their returns hurdles to take advantage of improved leasing conditions in Sydney.
“This has allowed local buyers to be more competitive and secure landmark assets, as highlighted by Charter Hall’s acquisition of 1 Shelley Street and Investa’s purchase of 420 George Street,” Mr Cullen said.
CBRE’s data highlights that local purchasers accounted for $7.8 billion in transactions in H1 2016, just 4% down on last year during what was a record breaking year for commercial transactions.
Looking ahead, Mr Granter added that H2 sales activity would be bolstered by a number of large, pending industrial deals and a number of upcoming IPO's, which would further support the appetite for real estate and good cash flows.
Taking into account both local and offshore buyer activity, a total of $10.5 billion in office, retail and industrial property priced over $5 million changed hands across Australia in H1. This was 8% down on the same period last year.
Declines were experienced in the retail and office sectors, with industrial bucking the trend aided by a number of portfolio transactions.
A total of $2 billion in industrial property changed hands in H1, up 20% on the same period last year, with circa $1 billion in sales occurring in June alone.
CBRE Regional Director, Industrial & Logistics, Chris O’Brien commented; “Domestic groups are competing with offshore money on all industrial product type at present. This supports the case for further yield compression for core and super core product, however restraints on lending are putting a short term stop on compression for secondary yields in the industrial sector.”
Excluding industrial, Mr McNabb noted that one contributor to the lower overall level of transaction activity had been the lesser number of portfolio deals in 2016 – with these transactions having bolstered activity in 2015.
Another was the lack of motivation for many owners to sell.
“Many investors have already disposed of non-core assets and with the development cycle appearing to have peaked, it is difficult for the market as a whole to redeploy capital,” Mr McNabb said.
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CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.