Commercial property spending spree

INVESTORS spent $28.6 billion on commercial offices, industrial and retail properties in the year to June, up 20% or $5 billion on last year, according to Savills.

Savills found institutional investors were the most active, accounting for 51% of deals by value or $14.7 billion, followed by foreign investor with 24% or $7 billion and private investors with 14%.

Savills national head of research Tony Crabb predicts the record levels of investment will continue with foreign investment, particularly from China, and institutions, remaining the key players.

Crabb said institutions have fully recovered from the GFC with a rise of 10% in 2014/15 sales and purchasing activity following a healthy $23.8 billion in the corresponding 2013/2014 period.

“At the depth of the GFC, in the 12 months to June 2010, institutions were net sellers of $3 billion in assets, the biggest decline in more than a decade,” he pointed out.

“What we have seen over the last two years has been an extraordinary investment market in terms of sales by number and value and also in terms of the relative softness of the leasing market.

“Institutional investors have been prominent – having bought and sold $26 billion worth of commercial assets in the 12 months – as have foreign investors, together representing 74% of all purchases,” he added.

Crabb said the shock of the GFC had delivered a dramatic wake-up call for a sector which had become too heavily geared and reliant on “easy” money and that had developed risky investment and business strategies that left it dangerously exposed, but that, as a result, was now a much stronger and more conservatively managed sector.

He said while growth in the non-resources side of the economy was slower than ideal, office markets – driven largely by property, finance and insurance sectors – in both Melbourne and Sydney were now showing improvement, while retail turnover was also on the up and industrial property in the eastern states had recovered well.

Although office remains the favoured asset class, up 19% to $16.5 billion, it was the retail sector, which was the big mover with $7.4 billion, up 26% on last year. The industrial sector reported $4.8 billion worth of transactions, an increase of 17% over last year.
The research also found foreign investors favoured offices, spending $5 billion on office compared to $700 million on industrial and $1.2 billion on retail property.

Savills found Brisbane, Sydney and Melbourne racked up $4.46 billion in industrial property sales – up a significant 45% on the five average – with the Sydney market ($2.4 billion) posting total sales nearly $900 million over the long term average.

There were 301 industrial properties (over $2 million) sold, up 23% on the 244 properties sold across the Melbourne, Sydney and Brisbane markets in the previous 12 months and a 26% rise on the five-year average.

Looking ahead Crabb said the fall in the Australian dollar, attractive commercial property yields, continued share market volatility, and record low interest rates would also continue to encourage investment.

He added that the marked slowdown in the Chinese real estate market, the relaxation of investment rules flowing from the Australia-China Free Trade Agreement, the Chinese Government’s encouragement for overseas investment, and the recent Chinese stock market jitters, would all contribute to further investment.

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