Australian dollar less of a factor in commercial property investment: Jones Lang LaSalle chart

Australian dollar less of a factor in commercial property investment: Jones Lang LaSalle chart
Australian dollar less of a factor in commercial property investment: Jones Lang LaSalle chart

The Australian dollar appears to be less of a factor than some believe in encouraging offshore investors to buy Australia’s commercial property, research by Jones Lang LaSalle suggests.

The graph below shows that funds poured into Australian commercial real estate when the Australian dollar was well above parity against the US dollar in 2012, rather than discourage investors.

It suggest that the opposite could happen if the Australian dollar falls – or perhaps that the Australian currency is less of a factor in commercial real estate as it may be in residential investment.

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Source: Jones Lang LaSalle Research

As Australian Financial Review property editor Robert Harley highlights, listed property trusts like the Goodman Group hedge 86% of their offshore income, so changes in the exchange rate have much less of an impact.

Savvy offshore investors would be able to do something similar to counter the exchange rate impact, while also attracted to Australian real estate due to its sound property market fundamentals - transparency, rising capital values, a strong economy and its proximity to Asia.

Certainly Asian investors are showing no signs of slowing down their appetite for Australian commercial property purchases, with a South Korean pension fund paying close to $400 million for 50% of the Erina Fair Shopping Centre on the Central Coast this month.

Harley also points out that the lower Australian dollar – which will support industries like manufacturing and tourism – may also flow through to benefit rural property and tourism property.

And a stronger Australian dollar is attractive to company’s like Westfield Group, which has nearly half of its income-earning assets in the US.

The Australian dollar peaked at $1.11 against the greenback in July 2011 and remained mainly above parity until the recent fall in early May sparked by the cash rate falling to a 53-year-low of 2.75%.

In 2007, the rising Australia dollar was also not an impediment to funds flowing into commercial real estate, with investors most likely seeing Australia as a safe investment haven.

In other periods – such as the late 1980s and mid-1990s – a rising dollar was also accompanies by an increase in funds flowing into commercial property.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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