Japanese buyers take the lead as Australia’s dominant offshore investors

Japanese investors trumped buyers from North America, Hong Kong and Singapore to be the most active offshore capital in Australia’s property sector last year, new CBRE data shows.

CBRE’s Australia Capital Flows report tracks investment across the office, industrial, retail, hotel and living sectors.

It highlights Japanese buyers snapped up just over $2 billion in Australian assets last year, well up on the $140 million invested in 2022.

North America was the next biggest source of offshore capital at $1.6 billion, down 17% y-o-y, followed in equal place by Hong Kong and Singapore at circa $1 billion, with Singaporean investment dropping 65% y-o-y.

European investment also declined significantly, with just $180 million invested in 2023.

CBRE’s Australian Head of Capital Markets Research Tom Broderick noted, “Ultra-low interest rates in Japan have given those investors a competitive advantage compared to other countries and Australian groups.”

CBRE’s data shows Japanese investors were most active in the living and office sectors in 2023, with major investments including Mitsubishi Estate’s investment in Mirvac’s $1.8 billion build-to-rent (BTR) venture and its joint purchase with Ashe Morgan of the 60 Margaret Street office tower in Sydney.

Japan’s largest homebuilder Daiwa House was another major player after teaming with Lendlease to develop a 45-level BTR tower as the group’s Melbourne Quarter project.

Factoring in both domestic and offshore investment activity, CBRE’s report highlights that national investment volumes dropped by 31% y-o-y to $24.1 billion in 2023.

“Repricing in some sectors continued to limit deal flows. However, on a positive note, the living and hotels sectors observed an increase in transaction activity, up 39% and 11% respectively, underpinned by strong investment fundamentals,” Mr Broderick said.

CBRE is forecasting deal activity to begin trending up this year before a resurgence in 2025.

CBRE’s Pacific Head of Capital Markets Flint Davidson noted, “The outlook for interest rates in Australia has improved significantly in recent months, with the potential for multiple cuts in 2024. As such, we anticipate an acceleration of investment activity in the second half of this year.”

Other finding from the Capital Flows report include:

• While Industrial & Logistics activity declined by 13% y-o-y, the sector recorded the highest deal flow of any sector in 2023 at $6.3 billion.

   

• The office sector observed a 65% drop in sales volumes in 2023, as a lack of consensus on fair value between buyers and vendors continued. Retail also saw a significant drop of 21% in 2023, however Mr Broderick said a lack of larger transactions appeared to be the main factor with private investors still active at the smaller end of the market.

   

• Higher return hurdles are pushing investors further up the risk curve.