With surging demand in the Australian property market, and over the past 18 months, commercial property recovering to pre-global financial crisis levels – one might ask, well who’s buying?
With a new wave of liquidity both domestically with Australia real estate investment trusts (A-REITS) and the tremendous increase in international investor interest driven by pension funds, sovereign wealth funds, developers, state owned enterprises, conglomerates, developers and ultra-high net worth individuals amongst others as institutions begin to invest in overseas markets – Australia is running red hot.
So, why Australia?
This certainly won’t be news to any of you. But Australia has been a strong performer in comparative global terms and has had an unbroken period of economic expansion since 1991, unmatched by any other advance economy. While we’ve certainly seen softer growth more recently, the combination of relatively positive economic conditions, low interest rates and predicted continued improvement of the global economy means that we are viewed as a safe place to invest, both from domestic and offshore investors, that at the end of the day – these investors are willing to pay top dollar for it.
Offshore investors continue to oversubscribe to the Australian market. Globally, Australia was the sixth largest market for transactional volumes in the first half of 2014 with offshore investors one of the most active participants.
We’re continuing to see significant premiums being paid over book valuations for transactions. This isn’t just for prime property, but also for well-located B grade assets.
Looking over the past 18 months, according to Jones Lang LaSalle, Sydney will rank as the 4th largest recipient for cross border investment and Melbourne in top 10. These two gateway cities continue to be benchmarked globally. The Property Council of Australia/IPD Australia All Property Index was also released earlier this week and shows that commercial property showed the highest total return recorded since June 2012, continuing a growth trend seen in recent quarters.
If we look specifically to our regional neighbours, Asian capital is looking to diversify away from emerging markets by investing in core assets in stabilised, developed markets like Australia. Asian investors and more specifically Chinese investors view Australia as a safe haven for investment. They are investing in premium property, and are happy to do so on a tighter yield than other markets.
To support this growth and the surging demand through the Asian corridor, we announced that we have acquired SGA Property Consultancy in an effort to expand our property advisory suite of service offerings beyond financial due diligence and are now able to provide physical property due diligence, property occupation support and broad range of environmental services.
Due to the complexity of these transactions and the growing volume, these investors as asking for technical due diligence on potential acquisitions and redevelopments, as well as other financial advice.
So when do I think that the demand for commercial property will slow down? To be honest, I don’t think it will be anytime soon.
With only more capital entering the market – safe to say that who’s buying will only get more competitive.
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