“You look at what’s an investable market and every year the list is growing shorter.”
“Australia is the island of stability” among political, economic and demographic risks within the global economy, according to MaxCap Group head of research Bruce Wan.
Speaking at The Urban Developer’s industry leaders lunch held in partnership with MaxCap in Melbourne recently, Wan said the US was “halfway to recession” but Australia was not expected to follow.
At one stage, the non-bank lender’s global partner Apollo Global Management has mooted a 90 per cent chance of the US falling into recession this year. And that sentiment is having an impact on the movement of global capital with many investors eyeing Australian shores favourably.
“When you’re sitting in any of the major financial markets, you’re looking around the world and saying, ‘Where should I park my money?’.
“You’re looking for safety, reliability and transparency. You’re still finding that in Australia.”
Wan says while there is more political risk there was also a deglobalisation playing out in markets across the world.
“Chinese capital is less likely to be invested in the US and vice versa, US less likely to be going into China,” he said.
“We’re first and foremost dealing with a trade war and a lot of tariffs. We’re starting to see pictures of empty ports in the US and a big dramatic slowdown in shipping traffic as well. The economy for the first quarter actually contracted in size, they’re halfway to a recession.
“Empty shelves in a Walmart will have an impact on the sharemarket and investor sentiment.
“Australia still stands very well in terms of economic stability, political stability and for all of those reasons, Australia still stacks up well as an island of stability for the foreseeable future.”
Knight Frank data on cross-border investment for the first quarter of 2025 shows a significant uptick in commercial real estate investment in Asia Pacific, which more than doubled, increasing 116.7 per cent year-on-year to $14.65 billion.
Japan recorded $6.38 billion, and Australia was the next strongest performer, recording $3.8 billion in transactions for the quarter.
In the region Japan has consistently been in the top spot in terms of where investors are targeting, with Australia a close second.
But looking ahead, investors are increasingly looking to Australia as a preferred location for global capital, according to MaxCap head of direct investment Simon Hulett.
“With it looking likely that Japan will see rates rise this year, there is an opportunity for Australia to move up the preference order with investors,” Hulett said.
“Indicatively, when global investors were reviewing allocations in 2024 for 2025, there was a lot of focus on the US on the back of the election result. Since then, given the unexpected volatility in that region, investors have focused more time and allocation on APAC, and to Australia in particular.”
Wan said investing in Japan had become a “genuine concern” for investors.
“It’s quite common for foreigners to be borrowing 80 to 90 per cent to buy an office building in Japan, and that worked fantastically when the cash rate was zero.
“But suddenly the cash rate needs to rise, they’re seeing inflation there for the first time in decades, and there is a workout that we haven’t seen the full measure of in the Japanese market.
“Japan has been the traditional ‘safe bet’, but it’s shifting. Australia’s consistency is pulling in those capital flows.”
Wan says Europe presents a demographic risk, as well as a political one with war on their doorstep, while the US is experiencing political tension and the growing likelihood of a recession.
Domestically, Wan said, there was a more positive outlook on the market.
“Australia has only experienced two recessions in the past 35 years, whereas other markets have seen between four and six recessions—the reason being we’ve got a lot of active stabilisers, shock absorbers that work very well in a downturn,” he said.
“We still have very resilient population growth, we’ve got lower interest rates coming through and that’s probably one of the reasons I’ve got a positive construction outlook.
“Every rate cut improves building approvals by about 2.5 per cent, so we’re expecting four rate cuts, and a 10 per cent boost in activity. That’s quite a substantial uplift in activity. We’ve also upgraded our price expectations as well because [of] lower mortgage rates driving up higher prices.
“Lower rates are very supportive of housing prices for this year and the next year.”
It was good news for developers including Salvo managing partner James Maitland, who said the cost of construction had continued to rise, while Chinese investors had all but dried up in the market.
“We used to have a lot of developers or groups out of China that loved the stability and could get their money out, and you couldn’t satisfy the demand with enough projects. Now they’re simply saying, ‘I don’t care, I’ll make more money in China, even if the government takes half of it, I’m still better off’,” Maitland said.
“We’ve seen it dry up.”
Wan said retail, industrial and to a lesser extent office had also been the beneficiary of improved investor sentiment in the Australian market.
“In terms of the equity world, the returns are starting to come back. Retail shopping mall equity returns have improved the most, they’re probably high single digits right now,” he said.
“We were expecting online shopping to kill off the shopping mall market, but that is coming back now because lower mortgage rates are supporting higher retail sales and more investors are comfortable in coming back into the market.
“We’re also seeing that in the industrial and office markets, while office is still lagging a little bit. Asset values are rising and net absorption is rising. For a long time people were concerned with tenancy and working from home, but I think the worst of that has passed.”
Riverlee development director David Lee said Australia offered stability and strong core returns.
“Historically, Australia has not been a prime market. If you look at other international cities, core returns are lower than what you find here,” he said.
“But we are seen as a safe economy here, with stable returns, and stability is attractive. We will be seeing Melbourne and Sydney CBD cap-rates sharpen over time and we will be ranked amongst the other major international cities.”
