Melbourne Top Australian City for Offshore Investment

Melbourne has become the second most sought-after city for commercial investment in the Asia-Pacific, surpassing Sydney.

Melbourne came second only to Tokyo thanks to strong rental growth and a tightening vacancy rate.

The results came from CBRE’s 2018 Asia Pacific Investor Intentions Survey, which saw Sydney’s rank fall from first to sixth – placing just in front of Brisbane which was the third Australian city to make the top ten at eighth.

The survey revealed Asian outbound real estate investment reached a record high in 2017, totaling US$83.4 billion, with real estate fund managers showing stronger intentions to purchase more this year.

Approximately US$53 billion worth of real estate private equity capital is forecast for the Asia Pacific region by 2020.

CBRE research director Bradley Speers said investors are more focused on rental growth for achieving capital growth as yields reach the bottom of the compression cycle in many markets.

“While some investment focus has shifted from Sydney to Melbourne, this is mainly Asian based, with Australian respondents surveyed still showing a preference for the New South Wales capital as a destination for capital.”

Related reading: Suburban Office Stock Returns Hit 10-Year High

Investors diversifying to reduce risk

CBRE senior managing director of capital markets Mark Coster said investors were shifting their focus from traditional asset classes to alternative assets such as healthcare and education due to the higher risk adjusted returns often available.

“Melbourne in particular is becoming increasingly compelling from an investment point of view, offering more opportunity in terms of stock availability and capital growth prospects – combined with its security as a gateway city with international recognition,” he said.

“Investment interest in Melbourne is underpinned by its income growth story – with strong rental uplifts forecast across all sectors over the next two – three years. This is driving capital growth and combined with continued yield compression in most parts of the market.”

Related reading: Strong Employment Growth Puts Pressure on Office Space in Sydney, Melbourne: JLL

Asia Pacific investors are reportedly less concerned about global and regional economic shocks and more concerned about property prices. The availability of stock is less of a concern in this year’s result, with more investors indicating that they are willing to sell.

According to the survey results, office occupiers identify co-working centres as an ideal strategy for increasing their space requirements over the next two years. By comparison, 42 per cent of investors rate flexible space as the number one occupier trend that will have the most impact on real estate value.

“Flexibility in the workplace is here to stay and one of the best strategies to improve the attraction of a building,” CBRE head of research Henry Chin said.

“Our results indicate that half of investors surveyed believe that having up to 20 per cent of a building contain co-working space will enhance a building’s value.

“Given that we are virtually at the end of the yield compression cycle, and that investors see co-working as a means to add value, we expect the number of co-working options will increase over the next few years.”