Foreign investors branch out in Australia's commercial market
Smaller cities becoming more attractive for commercial property seekers after traditionally focusing their energies on Sydney and Melbourne
Foreign investors, who traditionally focus on Sydney and Melbourne office buildings, are turning to properties in other cities in Australia amid rising competition for assets, according to Invesco.
Global pension and sovereign wealth funds are increasingly investing in malls and warehouses in Brisbane and Perth, said Ian Schilling, head of Australian real estate at the asset manager. That follows a drop of about 50 basis points in capitalisation rates for premium office towers as competition from foreign and local investors climbs, he said.
"Over the last couple of years, the weight of capital focused on quality Australian opportunities has increased," Schilling said. "A lot of clients tend to focus on major office markets in gateway cities, but we see that being diversified as they become comfortable looking at other markets."
A building's capitalisation rate is a measure of its investment yield, which falls as prices rise.
The weight of capital focused on quality ... opportunities has increased
About A$8.6 billion (HK$61.82 billion) of office properties changed hands in the first half of this year, compared with A$13.1 billion for all of 2013, preliminary figures from JLL show. There were some A$11.5 billion of sales across all commercial properties, matching the pace of 2013 when a record A$23.8 billion were sold, according to the July report.
"There remain large investors looking to deploy large amounts of capital into core products," said Rob Sewell, the broker's head of office investments, in the report. Sales this year "will result in new pricing benchmarks."