Property is attractive because of its ability to generate a yield thereby giving investors a significant income stream, especially at a time when global interest rates are significantly low. Australia has traditionally ranked highly on global real estate transparency index as a mature and transparent market. In comparison to other markets worldwide, yields in Australia are robust and tend to be higher than in Singapore, Hong Kong, and Japan. Strong lease clauses or covenants, most of them with fixed percentage increases, offer security – while encouraging potential opportunities for capital growth in Australia.
The federal government introduced the 2020 lockdowns and restrictions and it ultimately created unparalleled economic upheaval, with the densely inhabited CBDs becoming ghost towns. Following the reopening of Victoria, Sydney and Melbourne after citywide lockdowns, incentives for office leasing in the major CBD markets have now reached their peaks.
A broader spectrum of capital sources is projected to seek counter-cyclical possibilities as liquidity returns to these sectors. Investor sentiments will henceforth recover in Covid-19-affected real estate sectors, expanding the digital economy and further supporting the changing demographics of the real estate alternatives in the investment thesis.
We may expect a surge in growth as investors seek new opportunities and partnerships as Australia reopens its doors to all investors. In the year ahead, there are expected to be more mergers and acquisitions activities. Centuria, for instance, is in the midst of purchasing two fund managers (Primewest and Bass Capital), while the Dexus Wholesale Diversified Property Fund has taken over the administration of the AMP Diversified Property Fund.
Some major client appointments have also come forth to Intertrust Group, Australia that includes JP Morgan Asset Management’s capital collaboration with Stockland to develop an actively managed industrial property portfolio. The Baring Private Equity Asia has also been assisted towards purchasing the RMIT building, a commercial office tower in Melbourne, along with Cabot Properties’ industrial property acquisitions in Victoria.
Domestic purchasers make up the majority of Australian real estate buyers, followed by those from outside the Asia Pacific region. Singapore continues to show strong interest, and evidence suggests that the North American capital is returning. According to Real Capital Analytics, Singapore is the largest foreign investor in Australian property, followed by the United States.
Singapore has been the most active source of offshore money, accounting for more than double the number of transactions as Hong Kong, the second most active source. We can observe that overseas purchasers accounted for more than a third of all business deals worth $1 million or more this year, the biggest share in more than a decade. The $3.8 billion purchase of Blackstone’s Milestone logistics portfolio by global investment company ESR, the largest direct property transaction ever in Australia, has helped direct the results.
Victoria has witnessed the strongest demand, accounting for 30% of all offshore searches in the country. Offshore buyers have been particularly interested in Victorian industrial estates. New South Wales came in second with 27% of the searches, however, the cohorts being more interested in retail properties. The most sought-after assets in the Sunshine State are once again considered industrial properties.
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