Global investors set record for Australian commercial property

PUBLISHED : Wednesday, 25 September, 2013, 12:00am
UPDATED : Wednesday, 25 September, 2013, 4:45am

Macquarie Group, Australia's biggest investment bank, is seeing record global investor purchases of Australian commercial property, which is offering relatively high yields and secure cash flows.

The bank arranged a total of A$3.8 billion (HK$27.7 billion) of foreign pension and sovereign wealth fund investment in Australian property since last year, the most since the bank started private capital operations in property a decade ago, Chris Green, global head of real estate at Macquarie, said.

"Large pension and sovereign wealth funds have very large, growing amounts of money and they're looking to allocate a significant portion to real estate," Green said.

The bank assisted a European fund he declined to name with an industrial privatisation in Australia, residential joint ventures in India and the UK and investments in US multifamily properties and Chinese car parks.

Surging demand from investors for higher returns amid low bond yields globally is driving up commercial property values around the world.

CBRE Group's global industrial property index climbed 6.5 per cent in the three months to June 30 from a year earlier, while the group's retail property index rose 6 per cent and offices 3.4 per cent, "reflecting the significant level of capital migrating to commercial real estate," the broker said. Australian commercial property offered total returns of 9.1 per cent in the year to June 30, about 80 per cent of that from income and the rest from price growth, according to the Property Council/IPD Australia All Property Index.

That compares with total returns of 5.5 per cent on UK properties in the 12 months to August, 7.2 per cent in Canada in the year to June and 4.5 per cent for Japanese properties in the year ended May 31, according to Investment Property Databank indexes.

Australia's 10-year government bonds are offering yields of 3.95 per cent.

Globally, Macquarie Capital completed A$3.4 billion of property deals last year and has already exceeded that with A$3.7 billion this year, with the number of transactions staying at eight both years, Green said.

Investors increasingly prefer to do larger deals with fewer managers, he said.

They are also moving to riskier investments, including lower-quality properties, those that need some refurbishment or even development, as prices at the top end climb, he said.

Among Macquarie's biggest transactions since the start of last year have been the A$1.9 billion privatisation of Sydney-based Charter Hall Office Reit by the Canadian Public Sector Pension Investment Board and GIC affiliate Reco Ambrosia that completed in April last year; a A$500 million raising from Abu Dhabi Investment Corp to invest in warehouses in Japan in partnership with Sydney-based Goodman Group in September last year; and the A$1.75 billion split and restructure of an Australian shopping mall joint venture between Westfield Group and AMP Capital last October.

Interest is also growing in US property investments, where Macquarie has added "a couple of people", Green said, without specifying further.

US commercial property offered an annualised total return of 10.8 per cent in the year to June, compared with a five-year average of 2.7 per cent.