Commercial property investments top 22bn

COMMERCIAL property sales across Australia topped $22.2 billion in the 2013 calendar year, up 63% on the previous year's figure of $13.57 billion.

Savills’ national head of research Tony Crabb said Australian institutional investors went head to head with foreign investors to purchase commercial property for their portfolios.

“What makes Australian property attractive to foreign investors is likely to remain in place over the next 12 months and the competition that currently exists for commercial property assets is likely to remain. Australian institutional investors, purchased a total of $13 billion of commercial property,” he added.

Office was the most popular asset class, representing for a record $12.4 billion, up 92% on the previous year with Australian institutions accounting for a total of $7.192 billion.

Savills’ head of national capital transactions Ian Hetherington said the level of office sales is 30% above the boom years of 2006/7.

“The increase in activity is in direct reference to increasing confidence and the historically high spread between yields and debt,” he added.

Retail improved significantly recording approximately $6.8 billion worth of sales, up from $4.4 billion the previous year and up on the five-year average of $4.3 billion.

The sector also showed signs of heightened activity for retail assets in excess of $100m. These assets, which rarely change hands, accounted for approximately 43% of the total value of retail properties sold.

Hetherington said not only has there been increased demand for retail centres with a solid weighting of non-discretionary tenants in the neighbourhood and better quality sub-regional class of shopping centres, there has also been increased appetite for bulky goods centres on the back of some attractive yield.

There were 24 bulky goods property sales totalling $807 million, up from $787 million last year and the five-year average of $573 million.

Industrial demand also improved after peaking in 2006/7, with $3 billion worth of properties changing hands, up from $2.67 billion in the previous year and the five-year average of $2.7 billion.

Crabb said commercial property yields in particular continue to look attractive.

“The Australian economy is being rebalanced as growth in mining softens. This means housing and retail should continue to lift with positive knock on effects to industrial and office markets.

“As consumer confidence continues to rise, so should business confidence. As profit margins are restored, business decision making should gain momentum. Some state governments will move into election mode and could be expected to provide some stimulus to parts of the economy providing further momentum to investment markets.

“China and the United States are forecast to contribute positively to Australia’s economic outlook whilst Europe could be on the cusp of a subdued recovery,” he said.

Across Asia Pacific, Jones Lang LaSalle found investment increased by 29% in 2013, to $US126.7 billion, surpassing the previous record in 2007 of $US120.5 billion.

JLL head of Asia Pacific capital markets Stuart Crow said the year’s record-breaking growth was driven by the core markets of Japan, China, Australia and Singapore as investor sentiment was lifted by on-going improvements in both debt and equity markets.

“Throughout the year, commercial real estate markets experienced increased liquidity coupled with greater allocation from multi-asset managers, causing transaction volumes in every quarter to record an improvement on their corresponding period in 2012,” he added.

The resurgent Japanese market was a major contributor to the growth in 2013, up 67% y-o-y, re-establishing its position as the third most active market globally after the US and UK.

Record levels of investment were also reached in China, Australia and Singapore, up 66%, 30% y-o-y and 40% y-o-y respectively.

“In 2013, we continued to see a mismatch between supply and demand across a number of markets in the region. As a result, investors moved up the risk curve in search of higher yields and to mitigate against potential pressures from global fiscal policy,” JLL head of research for Asia Pacific Dr Megan Walters said.

“While we did experience caution in the markets following the reduction of the US Federal asset purchases, interest rates across the region proved less reactive when compared to the response following the announcement earlier in the year. Given the strength of investor sentiment and on-going demand, we expect markets to perform as well, if not better, than 2013 for the remainder of 2014.” Walters concluded.

Property Review

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