In spite of government attempts to improve enforcement of foreign investment rules, a new report sees Sydney and Melbourne cement their status as global cities, with commercial property in hot demand by Asia-based investors.
According to CBRE’s report on capital outflows from Asian countries into foreign commercial real estate assets, the US overtook the UK as the preferred buying destination in the first half of 2015. However Australia also proved to be an attractive place for investment, as capital inflows across the Asia Pacific surged 63 per cent.
Sydney ranked third on the list of targeted cities behind London and New York, with an estimated $2.5 billion in Asian investment over the period. Melbourne ranked sixth, although investment was much smaller at $700 million.
“While cross-border investments within Asia came down 40 per cent during [the first half of 2015], we are seeing continued and robust outbound growth, with international capital allocation increasing by 30 per cent,” said Ada Choi, senior director at CBRE Research Asia Pacific.
According to Stephen McNabb, CBRE’s head of research for Australia, hotels were the most popular type of Australian commercial property in the six months to June, accounting for just under half the $4.1 billion spent by Asian buyers on commercial property. Offices were the next most popular asset class, accounting for a further $1.4 billion nationally.
The largest foreign purchases in Australia so far in 2015, according to Mr McNabb, were of the Westin Sydney and Hilton Hotel Sydney, which changed hands for $445 million and $442 million respectively. Other large-scale investments include the Singapore-based Starhill REIT acquisition of Adelaide’s Myer Centre for $220 million.
This week, the Channel Nine studios site in Willoughby on Sydney’s lower north shore – a sprawling 2.9 hectare site – was picked up for $147.5 million by Hong Kong-based Euro Properties under a five-year leaseback arrangement. Eventual plans for the site are a large-scale residential development of as many as 400 dwellings.
“Euro fought off strong competition from local investors to secure the site in their latest foray into Australia,” said selling agent Matt Ramsay of CBRE, who noted the rising influence of the falling Australian dollar.
Continued strong investment in Australian property – both commercial and residential – comes despite government crackdowns on unregistered foreign purchases, resulting in forced sales and financial penalties.
Ms Choi said that both Sydney and Melbourne remain highly attractive to Asia-based investors.
“Many overseas investors consider commercial real estate in these and similar global hotspots as attractive investments with limited downside risk, due in part to the relative affordability of stable income assets compared to available domestic stock,” she said.
“As more Asian investors are looking abroad to diversify a growing pool of domestic wealth, overseas market dynamics such as stable fundamentals, regulatory support and market transparency will continue to drive them to pursue offshore opportunities.”
While demand may be surging, supply constraints may become apparent in the near future, with the Master Builders Association reporting a slump in commercial construction activity in the June quarter.