Foreign investment in Australian commercial real estate up significantly: Colliers

Foreign investment in commercial real estate has increased significantly, according to the latest foreign investment report by Colliers.

Foreign investors accounted for 67% of all commercial property transactions in Australia in the third quarter of 2012, compared with just 30% in the same quarter the year before.

Canada contributed more than half of the $1.88 billion of foreign sales in the quarter with a single transaction – the Canada Pension Plan Investment Board invested $1 billion into Sydney’s Barangaroo development.

Another big player in the quarter was also a pension fund – the Korean-based National Pension Service signed a $360 million joint venture partnership with DEXUS, which will co-invest in a number of industrial properties at Greystanes in NSW and Laverton North and Altona in Victoria.

The $1.88 billion of foreign investment was spread over 32 assets and bought the total amount of foreign commercial property transactions to $6.3 billion for 2012 so far.

Colliers found the largest direct transaction during the third quarter was the $105.1 million sale of the 29-storey B-grade office building at 6-10 O’Connell Street in Sydney. It was bought by the Singapore-based investment firm MGPA, its first foray into the Australian property market.

Office purchases made up 78% of foreign investment in commercial property during the third quarter. Foreign investors spent $1.5 billion on offices over 12 sales – the Baranagaroo deal as well as an additional $470 million of sales, which include the $66 million purchase of 100 Brookes Street in Fortitude Valley by the US-based Hines Global REIT.

After the office market, foreign investors were most active in the industrial sector. Foreign investors, primarily from Asia, spent $180 million over 13 industrial sales, mostly into Victoria.

This was followed by the hotel sector, where offshore buyers spent $152 million across three assets – the Palazzo Versace Gold Coast, the Rendezvous Grand in Melbourne and the Hotel Enterprize in Melbourne. These were by Singaporean and Chinese buyers.

And the fourth biggest sector was in retail where foreign buyers, primarily from Europe spent $85 million over four retail purchases, including Pittwater Place at 10 Park Street, Mona Vale, which was bought for $56.6 million by German investment firm RREEF.

Foreign investment was led by pension funds and investment managers, accounting for 63% and 13% of foreign investment during that period. A number of REITs were also active in the market accounting for 12% of investments, the largest being K-REIT’s funding arrangement with Mirvac while Hines Global REIT also continued to acquire assets.

The report found offshore private investors have increased their level of activity in Australian commercial property with $103 million worth of investment, making up 5% of offshore inflows during the period.

Alistair Walsh

Alistair Walsh

Deutsche Welle online reporter

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