OFFSHORE BUYERS BUMP OUT LOCALS IN $28B SPLURGE

Written on the 6 January 2016 by Nick Nichols

OFFSHORE BUYERS BUMP OUT LOCALS IN $28B SPLURGE

THE national commercial property market showed no signs of a slowdown in the past year despite a dip in overall sales to $28.4 billion in 2015.

The figure compares with a record $29.6 billion in 2014, according to CBRE, although $2 billion in industrial sales due to settle this quarter failed to make the cut at the end of the year.

Retail sales made the biggest splash over the past year, with a record $9 billion in sales, up 24 per cent.

CBRE says the data, a collation of office, industrial and retail property sales valued at more than $5 million, was again bolstered by 'unprecedented' offshore interest.

Foreign buyers accounted for 41 per cent of total sales, or $11.7 billion, which is a record. Sales to domestic buyers suffered as a result, falling 28 per cent.

"Rising volumes of offshore investment reflect the relative attractiveness of Australia's commercial property yields in a period when interest rates have been close to two percentage points above major developed markets globally," says CBRE's national head of research Stephen McNabb.

"The level of activity is also consistent with the trend towards globalisation and diversification.

"As a result, Australian investors are also beginning to export more capital offshore and we may see more of this in 2016, particularly as interest rates rise in overseas markets."

Apart from retail, offshore investors also took a shine to the office market with CBRE revealing that foreigners bought more office towers than domestic buyers for the first time since the real estate group started tracking statistics in 2005.

Both offshore buyers and sellers were active during the year as some took advantage of the falling Australian dollar and rising prices to lock in gains. CBRE says overseas buyers accounted for 54 per cent of total office turnover.

Despite a rise in the number of office sales, overseas investors increased their net investment in the Australian office sector by $3 billion.

CBRE's capital markets head Mark Granter sees this trend continuing into next year.

"At the beginning of 2014 the expectation was that foreign investment activity might ease, however it's only grown stronger, with the available returns in Australia still more attractive than in the other gateway cities offshore," Granter says.

"The underlying property fundamentals in Sydney and Melbourne are helping to drive activity as occupier demand improves and vacancies decline, with these markets also benefitting from the fact that not too much new supply is being delivered."

The biggest targets in the retail sector sub-regional and neighbourhood centres.

"Sales in these sectors totaled $2.8 billion and $2.5 billion respectively and in both cases this was up by close to $1 billion on prior year levels," McNabb says.

"Higher transaction volumes for neighbourhood and sub-regional sectors coincided with a circa 40 basis point yield compression through 2015 in these sectors, which suggests investor confidence has been buoyed by the improved retail sales backdrop, stronger tenant demand and the increased opportunity for re-development and expansion."

While industrial sales fell 15 per cent to $4.5 billion, CBRE puts this down to timing of settlements rather than lower demand.

Matt Haddon, CBRE's senior manager of industrial and logistics, says 2015 was more active than a year earlier, but many of the deals failed to settle before Christmas.

"We estimate that there could be $2 billion-plus of unrecorded deals agreed in 2015 that sit within this category," Haddon says.

 


Author: Nick Nichols

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