Overseas buyers drive Australia to record $31bn year

Foreign investors have continued pouring money into Australian commercial property, pushing the market to record highs.

Despite earlier reports that Australia had fallen $500 million short of its bumper 2014/15 financial year result for commercial property sales, new figures from Colliers International show sales across retail, office and industrial assets reached $31.1 billion in 2015/16, up 7.96% on the previous year.

Offshore investment again proved to be the prime driver, with a record $13.95 billion worth of deals accounting for 44% of the total investment in the local market.

At the top of the list of major foreign acquisitions was China Investment Corporation’s $2.45 billion purchase of the Investa office portfolio, which Colliers’ managing director of capital markets and investment services John Marasco says accounted for more than a quarter of the offshore office sales volume alone.

Australia’s retail property market soared to record highs.

“Even excluding this sale – which is the biggest of its kind in Australian history – office sales to offshore buyers were 81% higher than the next buying group, local institutions,” he says.

According to the figures:

• Office investment fell just shy of last year’s record $16.16 billion worth of sales, reaching $15.91 billion despite low levels of supply;
• It was a record year in retail, with the $7.93 billion in deals up 1.9% on last year and eclipsing the 2012/13 record of $7.627 billion; and
• The industrial market saw transactions worth a total of $7.64 billion – less than 1% below last year’s result.

Marasco says Australia continues to appeal to overseas buyers amid current global uncertainty.

“There are a number of reasons for this influx of capital from offshore buyers. Chief amongst these is the ongoing search for yield,” he says.

“Global bonds yields remain stubbornly low, and a number of geopolitical threats have been or are occurring around the world, including the Brexit vote and US presidential elections, both of which have the potential to impact confidence in the two strongest commercial markets in the world.”

New South Wales accounted for the largest single share of investment in the 12 months to June, with sales of $13.9 billion, while Victoria was next with $8.9 billion. Queensland fell just short of $5 billion in sales volume, while Western Australia recorded $1.63 billion and South Australia $824 million.

It was another strong year for industrial property.

Colliers’ national director of research Anneke Thompson says Australia is poised for further record-breaking results in the coming years, with indicators pointing to continued demand and growth.

“The best long term demand indicator for all classes of property is population growth. Over both the 10 years to 2025 and to 2035, Australia outperforms all our major competitor markets on this indicator alone,” Thompson says.

“Australia’s population is forecast to grow by 1.2% per annum to 2025 and a further 1% per annum to 2035. In the longer term, the major global markets have forecast population growth rates well below this – averaging 0.5% to 2025 and 0.2% to 2035.”

Marasco says he expects the strong demand to drive new commercial property developments, particularly in Melbourne and Sydney.

“These developments in Sydney and Melbourne will cement these cities’ reputations as globally competitive cities, for both tenants and capital, and a meet not only the current but also the future needs of occupants,” he says.