Offshore investment in Australian commercial property remains strong in December quarter 2011: CBRE

Australia maintained strong investor interest despite market sentiment in the Asia Pacific region deteriorating over quarter four 2011, according the latest report by CBRE.

The Asia Pacific ViewPoint report says offshore interest in Australia from Asia and Europe was steady through the quarter as competition from domestic groups including superannuation, funds, wholesale funds and unlisted property trusts grew.

In other Asia Pacific areas, market sentiment deteriorated due to increasing investor concern about the eurozone debt crisis and the uncertain global economic environment.

Despite this sentiment, investment volumes in the region rose during the quarter, bolstered by the completion of isolated larger deals and several related-party transactions.

Domestic Australian groups began to increase acquisitions as more substantial assets reached the market, particularly from the A-REIT sector.

Quarter four brought some large local deals including Australian Reward Alliance’s $310 million purchase of a 50% stake in the landmark QV1 tower in Perth from Dexus Property Group and Industry Superannuation Property Trust’s $200 million acquisition of a 25% share in 161 Castlereagh Street.

Australia remains attractive to offshore investors with high yields, a strong economic outlook and ease in making property deals, with one of the notable transactions being the $84 million acquisition of 140 Sussex Street in Sydney, according to senior managing director of international investments in Australia Rick Butler.

Most foreign investment came from Asia, predominantly driven by fund managers and Sovereign Wealth Funds in Singapore as well as cashed-up independent investors. The $185 million sale of the ASX building at 20 Bridge Street in Sydney went to Kwap, a Malaysian pension fund.

Butler is confident about the future of offshore investment in Australia.

“Demand from offshore parties should remain firm in 2012 whilst domestic investors will continue to turn more active,” writes Butler.

“News in January that Charter Hall Office REIT, which owns properties valued at $1.84 billion, had agreed to sell all of its units to an international consortium of PSP and GIC could be a sign of things to come, with investors looking for opportunities to acquire assets from listed and unlisted groups suffering from financial stress.”

China was another country that had sizeable transactions and development deals. Korea and Malaysia also had confident domestic groups.