Foreign Buyers Underwrite Commercial Property Sales Boom

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Thursday, November 5th, 2015
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As foreign buyers pour in, the boom in commercial property investment in Australia is continuing to roll on, a new report says.

Unveiling its September quarter Property Insights report, the Commonwealth Bank of Australia said $19.5 billion worth of office, retail and industrial property sales have taken place in the first three quarters of 2015 – down eight per cent from the same time last year but well above the 10-year average for this time of year of $15 billion.

Full year sales are on track to match or surpass the $24.3 billion total reached in 2013 and exceed 10-year averages by around 40 per cent, the Bank said.

Leading the charge are overseas investors, who have accounted for a record 48 per cent of sales by volume thus far.

Demand has come from a variety of sources, including Chinese and Middle Eastern sovereign wealth funds, Singaporean fund managers, and publicly listed property companies and banks from Germany and Switzerland. There is also strong interest from private investors at the lower to mid-price points.

In terms of asset classes, office property leads the way, accounting for 61 per cent of all transaction volumes as recent construction activity has seen a growing volume of new stock with new tenants committed to long-term leases come onto the market.

In terms of cities, meanwhile, Sydney is the centre of action, accounting for 47 per cent of all commercial property sales transactions – a share which is disproportional compared with its 30 per cent share of the country’s economic output.

As the country’s best economic performer amid a boom in residential construction and infrastructure investment, New South Wales has accounted for 70 per cent of growth in full-time employment throughout the nation over the past year and is experiencing population growth of 80,000 per year.

While demand from foreign investors is welcome, many local property owners, including Australian superannuation funds and real estate investment trusts, are pulling back amid fears that strong buying activity has driven down yields and made value more difficult to find.

A number of investors in this category are taking a ‘disciplined’ approach, and waiting for the market to cool before stepping back in, the bank said.

Going forward, the bank expects the relatively stable investment performance of commercial property as an asset class to drive continued levels of strong activity in the December quarter. However, it expects volumes to decline in 2016 amid limits in the number of large assets available for sale.

For buyers with no immediate need to invest, it says there may ‘potentially be benefits in waiting for the market to cool.’

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