Melbourne beats Sydney as the top Australian city for investment
Written on the 12 April 2018 by David Simmons
Melbourne has been named the number two city in the APAC region for investment for commercial property investors, coming second only to Toyko.
According to CBRE's 2018 Asia Pacific Investor Intention Survey the Victorian capital moved up from eight place in 2017 to second place this year.
Melbourne toppled Sydney which fell from first place in 2017 to sixth in 2018.
Brisbane managed to squeeze into the top ten as well, coming in at eight this year from the 10th spot in 2017.
CBRE research director Bradley Speers says Melbourne has become more attractive as commercial property investors are looking to diversify their investments.
"With yields reaching the bottom of the compression cycle in many markets, including Sydney, investors are more focused on rental growth for achieving capital growth, and diversification as a means of reducing portfolio risk," says Speers.
Speers says that Melbourne's triumph over Sydney is mainly driven by international investors from Asia, with Australian investors still preferring to invest in the New South Wales capital.
CBRE senior managing director Mark Coster says Melbourne's popularity is a result of its high potential for growth.
"Investment in Melbourne is underpinned by its growth story with strong rental uplifts forecast across all sectors over the next two three years," says Coster.
"Ongoing growth of online retail is repositioning the industrial & logistics sectors as one of the most in demand investment asset classes, with distribution centres now acting as a proxy for retail assets."
Asian outbound real estate investment reached a record high in 2017, totalling US$83.4 billion with 92 per cent of respondents saying their investment activity this year will be the same or greater than that of last year.
Real estate fund managers are optimistic too, with approximately US$53 billion of real estate private equity forecast for deployment in APAC real estate by 2020.
The high price of prime core assets continues to drive investors towards a core-plus strategy investing in prime assets in non-core areas, or non-prime assets in core areas, according to Henry Chin, head of research at CBRE APAC.
"Investors are exploring different ways to create value through asset enhancement, such as incorporating retail elements into office buildings or upgrading of assets," says Chin.
"Understanding occupiers' requirements will be critical for value-added investors. With occupiers increasingly demanding flexible leasing terms and space usage, many investors hold the view that flexible space is the future of the office work environment."
Co-working continues to be on the minds of investors as an idea strategy for increasing their space requirements with 42 per cent of investors rating flexible space as the number one occupier trend that will have the most impact on real estate value.
"Flexibility in the workplace is here to stay and one of the best strategies to improve the attraction of a building," says Chin.
"Given that we are virtually at the end of the yield compression cycle, and that investors see co-working as a means to add value, we expect the number of co-working options will increase over the next few years."
Business News Australia
Author: David Simmons