Increased industrial, hotel and residential inbound capital: CBRE
A report released by CBRE tracking investment into and out of the Pacific region found increased inbound capital targeting the industrial, hotel and residential site sectors over recent years.
The report, titled The review of capital flows in and out of global commercial real estate markets - Pacific Edition H1 2016, found net capital inflow into Pacific real estate in H116 was $720 million and a long-term trend of offices property being the preferred sector for inbound capital investment and retail the preferred sector for (Pacific) outbound capital.
Stephen McNabb, head of research CBRE Australia, said the big shift in net position reflected a decline in capital outflow from domestic investors which in H115 reached $4.4b but fell away to $1.4b in H116.
"It aligns with the trend for investors to be more inclined to ‘stay at home’ in times of heightened risk, preferring markets they know best," he said.
"Net capital inflow into Pacific real estate in H116 was $720 million, comparing favourably to the $2,170 million net capital outflow recorded in the previous corresponding period (PCP, H115).
"The big shift in net position reflected a decline in capital outflow from domestic investors which in H115 reached $4.4b but fell away to $1.4b in H116. The net position of the offshore investor sector was largely unchanged at $2.2b.
"Cross-regional investment activity was lower in volume. H116 saw $8.7 billion of capital flows to and from the Pacific region, 30 percent down on the $12.4 billion recorded in the PCP. This trend is consistent with the global theme of lower cross-border commercial real estate investment activity in 2016.
"Investors are more inclined to ‘stay at home’ in times of heightened risk, preferring markets they know best. Several events through the first half are likely to have impacted confidence: greater stock market volatility from September 2015 to February 2016, persistent concerns over the Chinese economy (albeit receding recently), the US election and Brexit."
"Historical capital flows in and out of the Pacific region (Chart 1) reveal a long-term trend of office as the preferred sector for inbound capital and retail the preferred sector for (Pacific) outbound capital. This trend held true in nine of the past ten years.
"We postulate that outbound capital prefers retail because of the limited opportunities to acquire institutional grade shopping centres in Australia and New Zealand, due to them being fewer in number (compared to office buildings) and also tightly held. Continents such as North America and Europe have much larger populations so naturally have more retail space.
"Inbound capital prefers office assets because they are typically less management intensive and better suited to passive investors. Additionally, yields on Australian offices since the GFC have held onto a sizeable (but diminishing) spread over office markets such as New York, London and Hong Kong.
"Superannuation funds since 2013 have been the main source of outbound capital by Pacific investors, accounting for 30% of outflows (Chart 2). REITs were prominent in 2014-15 but have been more subdued in 2016.