Australian real estate drawing overseas investors, but locals are looking elsewhere

At the same time as overseas investors are buying up Australian real estate, cashed-up superannuation funds are looking to invest in offshore property.

These two investment trends have emerged in the latest CBRE Global Capital Market View Report for the first quarter of 2011.

Despite the strength of the Australian dollar, overseas investor interest in Australian real-estate assets remains high.

Kevin Stanley, head of research for Australia and New Zealand at CBRE, told Property Observer investor interest is from “right around the world” based on strong economic forecasts.

“Australia remains attractive by global standards. Investors are looking beyond the most recent quarter and looking at the overall picture,” he says.

Another factor, Stanley says, is that Australia is a generally more transparent market than others and one where it is easy to do business.

“Rental increases and capital growth is expected in all sectors, especially in the offices sector,” he says.

The report says that Australia’s industrial and office markets have the largest potential for increasing returns in the short term, relative to other sectors of the market.

The CB Richard Ellis Prime Office Capital Value Index for Asia Pacific increased 18.9% year over year in the first quarter of 2011 – the largest increase since the second quarter of 2008 and twice the next-largest increase for the period, which was in the Americas.

Although this growth was driven by Hong Kong, Singapore and China, CBRE says rising rents in the Melbourne market in the first quarter of the year are expected to spread to the rest of the country in 2011.

It also says that potential for strong growth remains in Australia, New Zealand and Japan, with these countries facing delayed economic and employment growth as a result of natural disasters.

The report found a 44.8% decrease in transaction volumes in the Asia Pacific region year on year. The typically slow start to the year was exacerbated by the string of natural disasters late in 2010.

The report also notes that Australian pension funds are growing strongly and starting to make acquisitions in Europe with this expected to spread to North America and Asia in the medium to long-term.

Stanley expects that superannuation funds will look to invest in the established, big US markets such as New York, Washington Chicago and Los Angeles. Asian markets likely to attract interest include Hong Kong and Japan.

Transaction volume in Asia Pacific as a whole rose 5.5% year over year to US$21.3 (A$19.8 billion) in the first quarter of 2011.

Globally, capital investment values are increasing, with the CBRE Global Office Capital Value Index increasing 12% year over year in the first quarter of 2011.

Investors in Asia Pacific real estate are made up of private equity firms, REITs, insurance companies and corporations, according to CBRE, with capital sourced within the region.