Asian funds lead offshore commercial buying spree

Asian pension funds and property fund managers are leading the charge of offshore investors buying up office towers, shopping centres and industrial parks in Australia’s capital cities.

In total, foreign investors have spent $2.25 billion buying up Australian commercial real estate in the first six month of the year.

The offshore investment accounts for 30% of the total value of commercial transactions undertaken in Australia over the first half of 2011, according to CB Richard Ellis.

While the dominant source of funds has been from Asia, CBRE global head of research Kevin Stanley has told the AFR investments have also come from Germany and the US.

“Over the long run average investment by foreign investors represents about 10% to 15% of the market, so the current levels are very high,” he says.

The boom in offshore investment comes as commercial property sales rebounded strongly in the second quarter of 2011.

Recently released CBRE data show investment activity reaching $2.7 billion in the three months to June 2011, a 432% increase over the $638 million turnover achieved in the first quarter of the year.

The most recent transaction involving Asian investors is Singapore’s K-REIT fund finalising its $166 million, 50% stake in Mirvac’s 8 Chifley Office tower currently under construction in the Sydney CBD.

Other recent large offshore transactions include the Canada Pension Plan Investment Board buying 50% of the Northland Shopping Centre in Melbourne for $455 million at the end of June 2011.

The biggest direct property purchase made to date in Australia over the last 24 months has been the estimated $685 million spent by the South Korea National Pension Service in January last year to acquire Aurora Place, the Renzo Piano designed office tower and residential block, on the corner of Macquarie and Bent Streets in the Sydney CBD.

Philip Ling, managing director of LaSalle Asia Pacific, says Australia is a key for the pan-Asian region.

“We have to have a local presence – we have to be on the ground,” he says.

Ling’s comments follow LaSalle Investment Management buying Brisbane-based Trinity Funds, a manager of wholesale unlisted Australian direct property funds, for $19 million in July 2011 following its purchase of the Novotel on Collins Street in Melbourne and accompanying shopping centre for $204 million in March 2011.

The acquisition is part of a broader LaSalle plan to control $5 billion of Australian funds over the next five years.

According to Colliers national director Vince Kernahan, buyers from mainland China are emerging with one group close to buying a Sydney tower for about $120 million.

Jones Lang LaSalle chief executive Stephen Coney says Chinese investors are optimistic about the long-term prospects of the Australian economy.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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