Despite stricter regulations, foreign investment in Australian commercial property remains strong, hitting a record $10 billion last year. Foreign demand is not expected to peak in the near future as international buyers continue to scan the local market and finance rates remain low.
An analysis of 2016 transactions carried out by JLL shows that Singaporean buyers were particularly active last year, leading two of the top three most valuable deals.
Singapore’s ARA Asset Management Limited bought the landmark Southgate complex in Melbourne from Dexus Property Group for $578 million in August. This riverfront complex consists of HWT Tower and IBM Centre, as well as a shopping centre and carpark.
Other notable transactions include the Woolworths headquarters at Bella Vista in Sydney’s north-west (which was sold for $336.45 million to South Korea’s Inmark Group), and Innovation Place at 100 Arthur Street in North Sydney (which was sold to Singapore’s Ascendas-Singbridge for $313.2 million).
JLL estimates that foreign companies were involved in 40% of total transactions in 2016. Offshore investors sold $2.2 billion worth of assets in 15 transactions over a 12-month period.
Stephen Conry, chief executive at JLL, expects overseas interest in Australian property to remain strong in 2017, despite growing valuations. “The offshore investors have accounted for a rising proportion of major transactions in recent years,” he said.
According to Conry, 2016 “was no exception, with foreign investors accounting for a record number of transactions across the Australian commercial property sector. We are detecting no decline in offshore interest in the Australian market, but the limiting factor is a scarcity of stock. We are certainly finding that offshore investors are willing to broaden their mandates, both in terms of locations and sectors.”
Sydney’s diversified inner-city property market remains one of the best performing in the Asia-Pacific region after rents surged across the board in 2016. A report by Colliers International found that Sydney’s premium net effective rents rose 28.4% in the year to September, which is well above the 4.7% annual average growth rate over the past decade. A-grade rents increased by 27.8% while B-grade rents increased by 33.7%.
Colliers International said lower-tier Sydney rents were elevated because several buildings were acquired to make way for the NSW government’s major infrastructure developments across Sydney.
John Marasco, Colliers International capital markets managing director, said Australia’s political stability meant it would remain a premier international capital destination.
“It’s safe to say that 2016 has dealt its fair share of shocks to the global economy, with the standouts being Britain’s referendum to leave the European Union (Brexit) and a pending Trump presidency,” he said.
“These economic shocks further cement Australia’s position as an appealing global destination for foreign capital deployment. Australia has and will continue to resonate with foreign investors due to our consistent economic growth through cycles, transparent financial system, together with sound political and legal frameworks.”
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