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Annual foreign investment into CRE reaches $20b for the first time

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According to the latest Cushman & Wakefield Investment MarketBeat, the level of foreign capital targeting Australian commercial real estate assets has reached a record high as strong office markets across the country continue to attract offshore investors.

In the year to September 2019, foreign investment increased 78% YoY recording a total figure of $20b. This record level of foreign investment helped push market-wide investment volumes to a new rolling annual peak of $45.6b.

Rolling annual investment volume (AUDm); source of capital and foreign investment (%)

Foreign investment activity in the past year was concentrated on the office sector, which accounted for 66% [$13.2b] of all foreign investment. The highest level of offshore purchasing activity was seen in NSW, with volumes up 95% YoY to $6.8b. Compared to the previous year, Victoria and Queensland both attracted less offshore capital, however, overall investment into these states remains steady due to higher domestic purchasing activity.

Major deals during Q3 involving foreign investors included GIC purchasing 25.1% of Sydney’s International Towers Trust for approximately $1.08b, HKMA purchasing 25% of Wynyard Place through AMP Capital for $450m and Canada’s Public Sector Pension Investment Board acquiring a stake in the $830m 242 Exhibition Street in Melbourne.

Singaporean investors have been the most active purchasers in the past 12 months, accounting for $4.2b in investment volumes which represents a 25% uplift from the previous year. This was followed by substantial increases in inbound investment from Canada ($3.9b) while investment from mainland China and Hong Kong increased from $3.3b to $3.6b.

FOREIGN INVESTMENT ACTIVITY BY NATION, Year end Q3 2019

Major deals during Q3 involving foreign investors included GIC purchasing 25.1% of Sydney’s International Towers Trust for approximately $1.08b, HKMA purchasing 25% of Wynyard Place through AMP Capital for $450m and Canada’s Public Sector Pension Investment Board acquiring a stake in the $830m 242 Exhibition Street in Melbourne.

Cushman & Wakefield’s Josh Cullen said, “There continues to be a wave of foreign capital targeting Australian commercial real estate assets that has helped overall investment volumes reach unprecedented highs. This has been led by Singaporean investors, with ongoing demand from Hong Kong, and in the past twelve months North American pension funds have been particularly active.”

“Multiple factors have contributed to escalating foreign interest. Australian office returns are generally perceived as attractive in the global context due to forecast rental growth, strong sector liquidity and market transparency. We expect demand to continue due to attractive yields and further compression and the outlook for a lower Australian dollar.”

“The Sydney office sector attracted the lion’s share of foreign capital and North Sydney has been particularly active over the past year with major deals including Singapore’s Mapletree acquiring 111 Pacific Highway for $275m. With significant offshore investor interest in on-market deals including 99 Walker Street and 2 Elizabeth Plaza, we expect North Sydney to continue to attract a significant volume of foreign capital.”

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