AFR: Foreign investors surging as proportion of property buyers

The number of foreign investment groups active in the Australian commercial property market has jumped to 87 from just seven in 2006, according to a new analysis from JLL.

China, Singapore and the US are now the three most dominant investors in Australia: China accounted for 16 per cent of major commercial sales in 2016 up from a negligible figure in 2006, the US for 40 per cent and Singapore 23 per cent.

"The proportion of office acquisitions by offshore capital sources has steadily increased post the financial crisis in 2007 and reached an all-time high of 52 per cent in 2015," said JLL's head of international investments – Australia Simon Storry.

JLL estimate the size of the pool of investments in the Australian office sector alone is $223.5 billion with the 10-year average for the proportion of foreign investment into Australia sitting at about one third of the value of all transactions in that sector.

"Offshore capital sources were also a large seller of office assets in 2016. So strong activity on both sides of the ledger highlights divergent views on the outlook for capital values and the potential of investors to generate higher returns in certain markets across Australia," he said.

Former Chief Executive of Asia Pacific Real Estate Association and Non-Executive Director of Emerge Capital Peter Mitchell said the trend of further foreign investment in Australian commercial property was likely to increase.

Mature market

"I think this is happening because since the GFC investors have become more risk averse so they are favouring more mature markets and for Asia-based investors that means Australia," Mr Mitchell said.

"There has definitely been a notable shift in risk aversion and Australia rates very highly."

He said while there was clearly a lot of money coming in from Chinese groups such as the China Investment Corporation (which bought a $2.45 billion collection of office towers from Investa two years ago), there would also be a new surge of investment from other Asian countries such as Japan and Korea.

"We will soon see a greater spread from Asia and south-east Asia."

According to the Foreign Investment Review Board, China – for the third year in a row – was the largest source of approved foreign investment in fiscal 2015 with $47.3 billion spread across all areas of the economy but driven specifically by real estate aquisitions.

The trend is not just in Australia but globally.

JLL's global capital markets research director David Green-Morgan said cross-border activity is set to surpass 50 per cent of all investment activity by 2020 to more than $US500 billion annually.

"JLL has predicted that transactional activity will increase from $US700 billion in 2015 to over $US1 trillion by 2020. The major influencers in this trend are set to be international investors."

by Matthew Cranston