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Flight to alternatives pushes CRE investment to new yearly high

John Sears • 21/01/2020

Sustained investor appetite for alternative asset classes into Q4 2019, combined with elevated office market transactions, supported record yearly investment into Australian commercial real estate of $45.6 billion, according to Cushman & Wakefield research.

While the office sector continued to dominate transactions, rising 15.9% from $22.0 billion in 2018 to $25.4 billion in 2019, investment in alternative asset classes jumped 42% to $8 billion in the same period. Deal activity in alternatives accelerated in the second half of 2019, led by significant transactions in the student accommodation and fuel and convenience sectors.

This included the sale of the Urbanest Student Accommodation Portfolio to Scape Australia for $2 billion – the largest transaction in 2019 - Charter Hall’s acquisition of BP’s fuel and convenience retail portfolio for $840 million, and Scape Australia purchasing the Altira Student Accommodation Portfolio for $700 million on behalf of Alianz and AXA.

Industrial assets also continued to enjoy strong investment demand, supported by tailwinds in the transport and logistics sector, and e commerce growth. As a result, assets remained tightly held, leading to a 4% reduction in yearly investment volumes to $5.2 billion in 2019. Retail investment volumes were also down 21% to $6.8 billion following a decline in the depth of purchaser demand.

ANNUAL INVESTMENT VOLUME (AUDbn)

John Sears, Head of Research, Australia and New Zealand, Cushman & Wakefield, said: “While the Australian commercial real estate sector yields are trading at record lows, declining interest rates and bond yields ensure its relative attraction.”

“We saw overall investment volumes post their strongest calendar year to date, albeit lower than the rolling annual peak seen at the end of Q3. We view this as an indicator that the capital growth cycle has likely peaked, but we remain confident that Australian commercial property remains relatively good value and transaction volumes should remain high throughout 2020.”

Josh Cullen, International Director & Head of Capital Markets, Australia and New Zealand, Cushman & Wakefield, said: “Strong demand for Australian office assets, particularly from foreign purchasers, delivered another elevated year of investment accounting for 56% of all deals in a highly liquid market. Investors also looked further afield to secure stronger yields as well as value upside, which helped support the attraction of alternative assets.”

Foreign investment continues to target office, industrial sectors Australia’s relatively stable economy, transparent market and relative value continue to drive heightened demand from foreign investors with $19 billion in investment coming from offshore in 2019 - 42% of overall investment volume. While this was the strongest calendar year on record, foreign investment fell from its peak of $20.7 billion in Q3 2019 in rolling annual terms.

Singaporean investors remained the number one net purchaser of Australian commercial real estate assets for the third calendar year in a row ($2.68 billion), while significantly increased investment from Hong Kong (up 117% to $2.43 billion) and Germany (up 650% to $1.14 billion) secured their spots in the top three. During 2019, China remained a significant source of investment capital with the third-largest investment volume of any offshore jurisdiction at approximately $2bn. Given Chinese investors also divested $1.2bn, this meant that they ranked number as a net purchaser.

Simon Fenn, Managing Director Commercial Real Estate NSW, Cushman & Wakefield, said: “Foreign investors remained extremely active in the Australian market during 2019, particularly in the office sector where they represented the majority of capital invested. Offshore investors also continued to target industrial assets, despite competition from large Australian institutions who are pivoting capital toward the sector.”

-ENDS

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