The importance of foreign investment within the commercial property market in Australia cannot be understated, according to a key leader within the industry.
Knight Frank Victorian director Richard Jenkins said foreign investment into commercial property markets in Australia remained strong in 2014 as Asian investors led by China and Singapore ploughed almost $10 billion into commercial property acquisitions. Inbound investment accounted for around 44 per cent of all commercial property transactions throughout the year and Australia being the sixth most active destination of inbound investment into commercial property throughout the world behind the UK, US, China Germany and France.
Jenkins said foreign investment plays a crucial role in both the economy and the property market specifically, and that from a local point of view, strong levels of inbound foreign money into the market brought with it significant benefits for Australia with no downside.
“Attracting foreign investment supports economic growth and development in a number of ways, namely, creating employment, stimulating domestic investment and diversifying the economy by adding new and different economic activities,” Jenkins said. “Additionally, foreign investment promotes competition and supports productivity growth in domestic companies involved. Finally, foreign investment also increases global linkages and opportunities to their markets.”
“There are no significant risks of having a strong level of foreign investor interest in commercial property markets with a diversified investor base generally a preferred environment.”
Jenkins' comments come amid increasing levels of interest in the Australian market from major Asian investors, much of which has been concentrated around core assets offering a stable income stream such as office assets in Sydney and Melbourne, which rank ninth and sixteenth in the world respectively in terms of cities in terms of foreign capital flows in commercial markets.
Asked about challenges in attracting investment from a regulatory perspective, Jenkins said investors were seeking clarity and stability and that the transparent and reliable nature of Australia’s regulatory system has served the country well. He added that the country is also benefiting from higher yielding commercial property assets in comparison to other markets, strong population growth and being treated as part of Asia from a point of view of global investors seeking diversification.
He says the current wave of inbound investment into Australian markets is expected will continue to provide local developers with opportunities to partner with foreign investors especially in non-traditional areas such as healthcare and student accommodation.
Jenkins says the ideal types of partnerships would see local partners provide access to quality sites with and have a sound track record in delivering the final product with the investor for their part having good access not only to offshore capital but also offshore purchases.
“Looking ahead, with global transaction volumes are expected to continue to grow in 2015, partnerships between overseas and domestic players - which provide a powerful combination of capital and local market knowledge (may continue to become increasingly common,)” he said.