Local syndicates competing with overseas buyers for high-yielding commercial property: Scott Keck
Local property syndicates are pooling their cash to compete with overseas buyers for select income-producing commercial properties offering annual returns of up to 12%, according to Scott Keck, executive chairman of property consultants Charter Keck Cramer (CKC).
In his latest market commentary, Keck says the firm has noted, among the shifting market dynamics, increasing activity by private investment syndicates.
“A number of parties are pooling an equity fund of up to $30 million to allow leveraged investments of up to $70 million.
“With a strategy for near neutral gearing, syndicates have targeted fundamentally good-quality assets in good locations that are currently underperforming due to a lack of reinvestment in the GFC-affected era,” he says.
“This activity is a reflection of the changing nature of investment by an ageing demographic, seeking safer superannuation investments.
“This internally generated demand for property assets is now competing with strong investment from overseas. Investors from many of Australia’s near Asian neighbours recognise the high returns and low risk with Australian property and seek to engage with our local market,” he says.
According to Keck, “carefully selected” income-producing retail, office and industrial properties can provide “regular compounding rental growth and capital return to the combined effect of internal rates of return within the range of 8% to 12% per annum”.
Keck says Australian commercial property is underpinned by the strength of the country’s economic fundamentals - low inflation, declining interest rates, robust population growth and modest unemployment.
And while these domestic factors have been undermined by the current global turmoil, they remain “more favourable than in almost all other developed countries”.
“Most importantly to property markets, commercial accommodation is in shortage given the limited new supply that has been delivered since the late 2000s due to the initial round of impacts following the 2008 GFC,” he says.
These strong fundamentals and the relative unattractiveness of markets like the US and Europe are already attracting foreign institutional investor capital into Australia, he says.
Keck says it’s “no surprise that international investment is now increasingly targeting Australian property given its longer-term investment timeframe and stability”.
“The settling down of the Australian dollar returns a competitive opportunity back to foreign investors and the attractive total returns flowing from quality Australian commercial property offer a very substantial margin above increasingly lower returns elsewhere,” he says.
He points to a recent Dun & Bradstreet analysis of the world’s safest trade and foreign investment destinations listed Australia equal with Canada, Germany, Norway, Sweden and Switzerland as the safest, with Australia occupying the top spot for investment in the Asia-Pacific region, beating Hong Kong, Singapore and New Zealand.
