Research Reveals Foreign Domination In National Investment

Australia’s commercial property investment market continues to power ahead with another $26.9 billion spent in the 12 months to December with Foreign Investors again dominating national investment with spending of more than $10 billion or 39.5 per cent of the market, according to Savills Australia’s latest research.

Savills National Head of Research Tony Crabb said while the 2016 total was down a significant 20 per cent on the record $33.7 billion spent in 2015 it was nevertheless a strong result at 4.7 per cent over the $25.7 billion, five year average.

"The 2015 calendar year was obviously the standout in what has been an extraordinary investment market over the last four or five years, and 2016 - up nearly 5 per cent on the longer term average - was also a strong result.

"Given all indications from Savills offices in Australia and across the globe there seems little doubt that both local and off-shore investor demand will deliver another year of outstanding growth in 2017, the only qualification being a possible lack of stock," Mr Crabb said.

He said investors spent $14 billion on office, $6.5 billion on retail and $6.4 billion on industrial property with Foreign Investors dominating all categories with 46 per cent of office, 31 per cent of retail and 36 per cent of industrial purchases.

The foreign contingent was one of four key investors who accounted for a combined 84.3 per cent of purchases including Funds (18.6%), Private Investors (14.8%) and Trusts (11.4%).

New South Wales led the national count with $6 billion in office sales - 43 per cent of the national total - including $3.5 billion in non-CBD sales (47 per cent of the national total).

In the retail sector Queensland dominated with 32 per cent of total sales ($2.1 billion), while the biggest industrial spend was in New South Wales with $2.7 billion.

Some of the bigger sales included:
Retail

• David Jones (NSW) - Scentre Group/Cbus $360 million

• Forest Hill Chase (Vic) - Blackstone $267 million

• St Collins Lane (Vic) - JP Morgan $247 million

• Toombul Shopping Centre (Qld) - Mirvac $228 million

• Casey Central (Vic) – M & G Real Estate $221 million

Industrial

• Goodman Portfolio (NSW/Qld) – Blackstone – circa $1.2 billion*

• JPMorgan portfolio (6 assets NSW) - $250 million

• Oxford Cole Store Laverton (Vic) – Logos Property Group - $205 million

• Portlink Industrial Estate (Vic) – Charter Hall - $215 million

Office

• Southgate Complex (Vic) - ARA $578 million

• 1 Shelley St (NSW) – Charter Hall/Morgan Stanley - $525 million

• 420 George St (NSW) - Investa (75%) $442 million

• 890 Grenfell St (SA) - Blackstone $400 million

Yields to continue to firm
Savills CEO Australia & New Zealand Paul Craig said lower yields were likely across Sydney, Melbourne, and to a lesser extent, Brisbane markets as investors factored future rental growth into their calculations.

"Nationally, A grade yields have firmed continuously over the last six years from a high of more than 10 per cent to less than 6 per cent now, and in some cases closer to 5 per cent, and there has been much discussion about how far they can or will go," he said.

"It now seems absolutely clear that yields will tighten even further in anticipation of future rental growth, as lower vacancy rates across the Sydney and Melbourne markets drive rental increases and a significant fall in incentives.

"That said we are bound to see a major office deal below 5 per cent in 2017 in the Sydney and/or Melbourne CBD office markets especially considering the breadth of aggressive capital which will continue to chase fewer and fewer opportunities,’’ Mr Craig said.

Mr Crabb said the foreign investor take at nearly 40 per cent was 80 per cent up on its 22 per cent share in 2014 reflecting both the relative strength of the Australian investment market and Australia’s safe haven status.

He said the local institutional investor share of the market had fallen from 48 per cent (Funds 31%, Trusts 17%) in 2014 to 30 per cent (Funds 18.6%, Trusts 11.4%) in 2016.