New Report Tracks Capital Flows In And Out Of Pacific

A new report from CBRE has tracked investment both into and out of the Pacific, revealing that office investment is the preferred sector for inbound capital while retail is the preferred sector for (Pacific) outbound capital.

Net capital inflow into Pacific real estate in H116 was $720 million, comparing favourably to the $2,170 million net capital outflow recorded in the previous corresponding period (PCP, H115), according to the report.

According to CBRE Head of Research for Australia and report author Stephen McNabb, the big shift in net position reflected a decline in capital outflow from domestic investors which in H115 reached $4.4 billion but fell away to $1.4 billion in H116.

The offshore investor sector's net position barely changed at $2.2 billion.

The report reveals that since the PCP, cross-regional investment activity was down 30 per cent in H116 at $8.7 billion, against its $12.4 billion in H115.

Mr McNabb believes this trend is consistent with the global theme of lower cross-border commercial real estate investment activity in 2016, where investors prefer to 'stick to what they know', operating within domestic markets that are familiar to them during times of heightened risk.

Mr McNabb's executive summary in the report suggested that several events through the first half of the period have likely impacted investor confidence.

Such events include greater stock market volatility from September 2015 to February 2016, persistent concerns over the Chinese economy, the US election and Brexit.

He also pointed out that the trend of inbound office and outbound retail as preferred investment sectors is a trend that has held true in nine of the past ten years.

"We postulate that outbound capital prefers retail because of the limited opportunities to acquire institutional grade shopping centres in Australia and New Zealand, due to them being fewer in number (compared to office buildings) and also tightly held," he said.

"Inbound capital prefers office assets because they are typically less management intensive and better suited to passive investors. Additionally, yields on Australian offices since the GFC have held onto a sizeable (but diminishing) spread over office markets such as New York, London and Hong Kong."Aside from the interest in the office and retail sectors, CBRE's report also revealed that there has been a gradual increase in inbound capital targeting over recent years in the industrial, hotel and residential sectors.