Chinese commercial property investments in Australia grew more than 5000% between 2007 and 2013, while domestic investors are beginning to re-enter the market at a rapid rate.
According to Colliers International, the amount of Chinese direct investment in commercial property in 2013 was $871m. This compares to just $17m in 2007.
Colliers national director of research Nerida Conisbee says this figure is expected to grow in the next decade.
“Changes to regulations surrounding investment into property by Chinese investors is expected to lead to significant amounts of capital entering Australia."
Substantial investment in Australian property is also coming from South Korea, says Consibee, as the nation’s large pension system looks to actively invest in property worldwide.
“It is likely that pension funds will continue to increase their investment in Australian property, both local superannuation funds, and offshore groups. Malaysian investors are also expected to become more active, particularly from the huge amounts of personal wealth in that country,” says Conisbee.
In 2012 offshore investors accounted for more than half of all direct purchases by volume, says Consibee, a percentage that would be even higher if capital partnering and investment into listed and unlisted funds was also included.
“It is therefore interesting that in 2013, this began to change,” says Connisbee. “Domestic investors re-entered the market at a rapid rate. At November this year, they have accounted for more than 70 per cent of total direct sales.
“The local investors entering the market have been primarily major property institutions, with their unlisted funds being particularly active.
“By the end of October, these unlisted funds accounted for $4.3billion of total transactions. This is higher than what was experienced in 2007 prior to the global economic downturn, and more than double the 2012 level.”
Improving conditions overseas have also started to influence investment in Australian REITs.
“Earlier this year, there was a lot of offshore capital flowing in, however at present, there appears to be a shift back to other markets, particularly the US and Europe,” says Conisbee. ”Although this does not appear to be having much of an impact on direct property at present, it is likely that it will over the next 12 months."
John Kenny, Colliers International CEO, Australia and New Zealand, says strong investment conditions have been the defining feature of the Australian property market in 2013.
“Australian property continues to attract increasing levels of capital, both from within Australia and offshore,” says Kenny. “Our market has been considered a safe haven with low interest rates and attractive yields continuing to attract international investors and providing solid investment conditions for local investors.
"Heading into 2014, we believe a number of factors will lead to an improvement in demand for business premises across office, retail and industrial and continual confidence in the investment property markets.
“This includes an ongoing improvement in global conditions, the strong recent return of confidence in the housing market and increasing business confidence on the back of improvements to consumer confidence. These factors will have flow-on employment impacts to many sectors, including retail, office and industrial.
“As consumers begin to move away from high levels of cautiousness and move to increasing their spending, this is likely to lead to greater business activity and higher levels of business investment.”
Conisbee says forecasts for leasing markets in 2014 are cautiously optimistic.
“In all markets, we are prudently confident that we will see a recovery in rents and are predicting modest rental growth across all sectors,” says Consibee. “This will primarily be as a result of improved business confidence following better economic conditions offshore, an improving housing market and a return of consumer confidence.”
Over the past 12 months, vacancy rates had increased across most major CBDs and the majority of metro office markets.
“This softer tenant demand environment has seen rents stabilise, on a face basis, while rising incentives has seen effective rents actually decline,” says Consibee. “While this has been a challenge for owners, it has given tenants more flexibility in lease negotiations.”
Significant purchases by Chinese investors in 2013 have included:
- Centennial Plaza (260, 280 and 300 Elizabeth Street, Sydney): Sold on behalf of Investa Property Group to Invesco (on behalf of Chinese Investment Corporation), for $305million. The largest direct property transaction in the Sydney CBD this year.
- 229-234 Franklin Street, Melbourne: Sold for $17million to a private Chinese investor.