Offshore investors eyeing Perth commercial market

Over 2013, local institutions, syndicates and private investors were the most active across Perth’s market, however this year the tide will turn towards offshore investment, according to Knight Frank.

Knight Frank noted that while Perth’s market will continue to perform well, it will be buyers offshore, specifically in Asia, who will become more aggressive in their purchasing habits.

Local buyers accounted for 87% of 2013’s $1.26 billion of major sales in Perth. This figure may just change dramatically, suggested Knight Frank managing director of Western Australia, John Corbett. 

Investors offshore secured more than $250 million of Perth property in January this year.

However, the lion’s share was $205 million in a single purchase of Harbour Town by Singaporean company Far East Group. He said there were some significant purchases from Malaysian, Singaporean and US investors outside of this also.

“The decrease in the value of the Australian dollar started to draw foreign attention back to Australia in the latter part of 2013, but it will really begin to gain momentum in 2014,” Corbett said.

“In addition to the favourable dollar, yields in Australia are mostly 8% plus, whereas in Asia they are below 3%,” he said.

He said that the strong economy is making the area attractive to offshore buyers. This was recently emphasized by CBRE in a research analysis that found Australia is the second most attractive country for cross-border investment, after China.

CBRE’s Asia Pacific Investor Intentions Survey 2014 showed that a significant majority, 64%, expected to commit more capital to the Asia Pacific real estate market this year than last.

There are, however, some concerns around investing this year. An economic slowdown or weakness was cited by 23% as the main concern, the perception of property being overpriced was noted by 21% of respondents and the effects of US tapering and rising interest rates were flagged by 17%.

Managing director, capital markets Asia, CBRE, Greg Penn, said that despite this the outlook remains positive for longer term prospects.

“Investors are not just planning to commit more capital to the region, they are looking to commit substantially more. The attractiveness of Asia Pacific as a region persists as a result of economic growth levels that remain higher than global averages, long-term demand for quality commercial property and rapid urbanization,” said Penn.

Their survey still found that, of the Australian cities, Sydney and Melbourne were ranked highest as the offshore investors’ places to buy.

There may, however, be a slowing in capital inflows as we compete on the global stage.

CBRE senior director, international investments, Michael Andrew, said that investor interest is also broadening past the main CBDs, and into our secondary markets.

“Australia is still witnessing very strong demand for core real estate across all sectors, however we have seen the emergence of an appetite for assets in what has often been seen as secondary “non-core” markets, where investors understand they can still get high quality assets, strong covenants and at better yields than in the CBD's,” Andrews said.

Industrial assets regionally have seen an uptick in popularity in the survey, with the industrial and logistics sector particular highlighted as attractive.

Overall, however, the office sector took out top spot in popularity with 32% of results, followed by industrial and logistics, 29%, and residential, 21%.

This survey has been recorded since 2005, was carried out online between January and February 2014 and included a number of different real estate investors including fund or asset managers, private property companies, REITs, banks, insurers and private equity firms.

However, not every overseas investor is set to do well. Those with some local knowledge are likely to outperform others, said Corbett.

He also said that where development sites were 2013’s focus, now it will be income generating assets.

“Canadian pension fund PSP bought a 33% share in Raine Square and Bankwest Place last year, while US investor Blackstone purchased 8 St Georges Terrace, showing strong trans-Pacific interest in our market,” he said.

“We expect that will be the beginning of increased interest in Australia from US and Canadian markets.”

He pointed to opportunities for offshore investors at primarily securely leased CBD office buildings, shopping centres and selected hospitality assets.