Investment in commercial property across the retail, industrial and office sectors was at a record high in the 2014/15 year, according to the Colliers International Australian Investment Review launched this week. Across the three sectors, the overall investment activity was up 19% from the 2013/14 year, at a record $28.88 billion.
“Transaction volumes across the industry are up, as both offshore and domestic investors demonstrate a continuing strong appetite for Australian commercial property,” said John Marasco, Managing Director of Capital Markets and Investment Services at Colliers International.
“The low interest rate environment, the falling Australian dollar and our stable economy have combined to create optimum conditions for Australian commercial property. The strong performance of the sector in recent years, and the potential for continuing growth have made more offshore investors consider the Australian market for the first time. At the same time, conditions for domestic investors have also been positive, so together demand for commercial property assets is at an all-time high.”
These factors have led to Sydney becoming the third most popular destination for global offshore investors, behind London and Manhattan, and ahead of Shanghai and Paris.
More than $15 billion worth of assets transacted in the office sector throughout the year, up 7% on the previous year. Capital partnering was a key theme in the office sector, a trend that has been popular for several years now. However, a notable new player in the office sector was the rise of the offshore private investor, particularly those from mainland China and Hong Kong, who purchased $1.11 billion worth of office assets in the 2014/2015 year.
“Improving tenant demand is providing further confidence to the investor market,” said Mr Marasco. “This is fuelling strong interest in our office market from both domestic and offshore investors, many of whom are new to this market. Global sovereign wealth funds are increasingly turning their attention to the Australian office market, and this in turn is driving increasing demand which is putting yields across all office grades under pressure.”
The largest transaction of the 2014/15 financial year was the sale of 62.5% of T1 at Barangaroo to Qatar Investment Authority (QIA) and Australian Prime Property Fund (APPF) Commercial for a total of $875 million, which occurred in the final days of the financial year. However, this has more recently been eclipsed by CIC’s acquisition of the Investa Property Trust in late July for approximately $2.5 billion.
View Colliers Office Review 14/15
$6.45 billion in assets changed hands throughout 2014/2015, up 56% on the previous year. The logistics and transport industries are the driving force in the sector at present, which is experiencing low vacancy and limited new supply. Offshore investors purchased $2.63 billion worth of Australian industrial property throughout the year, equivalent to 41% of all transactions for the sector.
“REITS, super funds and sovereign wealth funds have all been active buyers in the industrial sector,” said Malcom Tyson, Managing Director of Industrial at Colliers International. “Private investors have been net sellers as they seize the opportunity presented by the current market conditions and strong demand for quality industrial property. Yields in the Australian industrial market are still more favourable than those of other international markets, so global buyers will continue to seek opportunities in this market.”
The largest sale was the $253 million sale of the Coles Chilled Distribution Centre in Eastern Creek, brokered by Colliers International. The sale of large scale industrial portfolios was another key theme seen in the sector throughout the year.
$7.541 billion worth of assets traded in the retail sector over the 2014/15 financial year. This was up 24% on the previous year. There was a 26% increase in the number of transactions throughout the year, which stood at 157 sales in total. More than half of these sales were in the $10 million to $30 million price bracket, with private investors highly active vendors, taking advantage of the current strong market conditions.
“The improving retail trading conditions are fuelling further confidence in retail investors,” said Lachlan MacGillivray, Head of Retail Investment Services at Colliers International. “A lack of supply and record levels of demand for high performing assets are contributing to yield compression. However, this has not deterred investors, particularly those from offshore, who accounted for 16% of all transactions in the sector, showing a particularly strong interest for assets with development potential.”
The largest single asset transaction during 2014/15 was the sale of Mt Ommaney Centre for $416.25 million in October 2014. The asset was acquired by US-based TIAA Henderson Real Estate and Federation Centres from AMP Capital.