Offshore investment in Australian commercial property at 20-year high

CBRE has labeled 2011 the “year of the foreigner” because offshore buyers accounted for 37% of all commercial property transactions, the highest proportion of offshore investment in almost 20 years. 

Taking into account sales over $20 million, the total value of 2011 transactions reached $9.8 billion as of December 16, 13% higher than the previous year, with foreign investors accounting for $3.7 billion of these transactions. 

Asian buyers accounted for more than half (51%) of all offshore investment and nearly one in five (19%) of total transactions for the year. 

Outside of Asia, foreign capital has been flowing in from a wide variety of sources, including the US and South Africa. There have also been some first-time investments from Canada, Austria and China. 

German investors, once the driving force among foreign investors, accounted for just 10% of offshore activity, according to CBRE’s data, as concerns closer to home limited global acquisitions. 

The share of foreign investment in Australia has increased every quarter in 2011 after getting off to a slow start in the first quarter with just 4% of transactions being offshore buys. 

However, this share rose to 34% as the market bounced back in the second quarter, increased again to 41% in third quarter, before hitting 44% of total sales for the fourth quarter (as at December 16). 

“It’s been a strong and definite trend of foreign interest and activity in Australia’s property market in 2011,” says Kevin Stanley, CBRE’s executive director for global research and consulting. 

“There are many motivators, all working together at present. Australian yields remain high by global standards, kept that way ultimately by the high local cost of debt and the limit this places on bidding from domestic investors. Add to that the search for an economy with a half-decent outlook and an ease in doing property business and Australia is an obvious choice for global investors.” 

Rick Butler, CBRE senior managing director for international investments, says the “push into Australia is being driven predominantly by fund managers and sovereign wealth funds working out of Singapore, along with some big-hitting private investors from the same city”. 

“The Australian market continues to attract foreigners due to its growth story, compared to Europe and the US, together with its transparency.” 

The fast growth in savings in Asia has fuelled activity as investors adopt global investment strategies to diversify risk. 

While foreign investors have been the dominant buyer group in 2011, Stanley says there was increased competition from domestic groups toward the end of the year as superannuation funds, wholesale funds and unlisted property trusts started to increase acquisitions as more substantial assets reached the market, particularly from the troubled A-REIT sector. 

These domestic groups together accounted for 21% of acquisitions in 2011, making them the second largest group behind foreign investors. 

Across all property sectors, NSW recorded the largest share of sales in 2011 (32%), with Victoria accounting for 25%.  Queensland and Western Australian trading was in line with the size of their share of the property markets nationally, at 20% and 10% of sales activity respectively. 

Significant offshore deals in 2011 include:

• Singaporean-based private investor Memo Corp buying 259 George Street $395 million
  
  
• Hong Kong-based RREEF buying 20 Bridge Street, Sydney for $185 million 

• Credit Suisse’s all equity purchase of 55 Elizabeth Street, Brisbane for $165.5 million 

• US pend fund Pramerica/NPS buying 595 Collins Street, Melbourne for $130 million

• A German pension fund (through RREEF) buying 140 Sussex Street, Sydney for $84 million

Major purchases made by domestic groups this year include:

• The $310 million 50% purchase of the QV1 office building in Perth by superannuation fund Australian Reward Alliance.
  
  
• The purchase of the office property at 452 Flinders Street, Melbourne for $201.5 million by the DEXUS Property Wholesale Fund.