SYDNEY RANKS THIRD FOR GLOBAL PROPERTY INVESTORS
Written on the 25 August 2015 by Nick Nichols
OFFSHORE investment in the Australian commercial property market hit an all-time high last financial year, placing Sydney among the world's most sought-after markets.
New research from Colliers International this week shows investment across retail, industrial and office markets nationally was up 19 per cent from 2013-14 to a record $28.88 billion.
Sydney has taken a big bite of that figure with $US5.1 billion ($7 billion) in sales to offshore investors over the year, just edging out Shanghai ($US5 billion) and Paris ($US4.9 billion) in the global investment stakes.
London remains at the top of the tree with $US28.7 billion in offshore funds propping up the market there, with Manhattan at $US12.2 billion.
The Colliers research has found that the record sales figures have been bolstered by offshore capital partnering with domestic managers, a trend that Colliers says is becoming more prevalent across all commercial sectors.
"Offshore capital partnering is becoming more and more common, and not just in the office sector," says John Marasco, managing director of capital markets and investment services at Colliers International.
"We are increasingly seeing this trend in the industrial sector, and we're aware it may also become more prevalent in the retail sector as well.
"Perhaps the greatest challenge for the industry is the lack of stock coming to market. Demand is certainly outweighing supply at present, and limited new supply is leading to yield compression across the board. "
Marasco says the domestic commercial markets are benefiting from low interest rates, the falling dollar and a stable economy which have combined to create "optimum conditions".
"The strong performance of the sector in recent years, and the potential for continuing growth have made more offshore investors consider the Australian market for the first time," says Marasco.
"At the same time, conditions for domestic investors have also been positive, so together demand for commercial property assets is at an all-time high."
In a sector breakdown, the Australian office market saw more than $15 billion worth of assets change hands in 2014-15, up 7 per cent on the previous year.
Industrial investment surged 56 per cent to $6.45 billion, while retail lifted 24 per cent to $7.54 billion.
Mainland Chinese investors accounted for $1.11 billion of office sales during the year.
"Global sovereign wealth funds are increasingly turning their attention to the Australian office market, and this in turn is driving increasing demand which is putting yields across all office grades under pressure," says Marasco.
In the industrial sector, offshore investors accounted for 41 per cent of sales, or $2.63 billion.
Malcom Tyson, managing director of industrial at Colliers International, says REITS, super funds and sovereign wealth funds have been active buyers in the industrial sector.
"Private investors have been net sellers as they seize the opportunity presented by the current market conditions and strong demand for quality industrial property," Tyson says. "Yields in the Australian industrial market are still more favourable than those of other international markets, so global buyers will continue to seek opportunities in this market."
As for retail, the most popular price bracket was between $10 million and $30 million, which accounted for more than half the $7.54 billion in sales.
"The improving retail trading conditions are fuelling further confidence in retail investors," says Lachlan MacGillivray, Colliers' head of retail investment services.
"A lack of supply and record levels of demand for high performing assets are contributing to yield compression. However, this has not deterred investors, particularly those from offshore, who accounted for 16 per cent of all transactions in the sector, showing a particularly strong interest for assets with development potential."
Colliers forecasts strong activity this year across all three commercial sectors, with retail in particular expected to produce record prices due to a "pricing disconnect" between prime office and retail properties.
"This disconnect is being driven by a lack of availability of premium grade investment product in retail, in contrast to the office sector which is experiencing a steady supply and subsequently a competitive bidding processes," says MacGillivray.
Author: Nick Nichols