FOREIGN investors are set to dominate the Melbourne investment office market in 2012, having already snapped up $1 billion worth last year, according to Ernst & Young and Australian Property Institute (Vic).
E&Y real estate partner & API (Vic) commercial property spokesman Richard Bowman believes the market will be dominated by cashed up Asian and risk adverse European institutional investors looking for secure investments with stable, assured returns.
In 2011, almost $1 billion worth of Melbourne offices were sold to overseas investors with notable mentions to Germany’s Real I.S AG $100 million purchase of Defence Plaza at 661 Bourke St; Malaysia’s CIMB paying $120 million for 850 Collins St; Singapore’s Chip Eng Seng Corporation buying 150 Queen St for $25 million; and United States-based Pramerica Real Estate Investors and South Korea’s National Pension Service paying $144 million for 595 Collins St.
Bowman believes 2012 will surpassed the $1 billion mark as offshore investors compete with local investors for commercial investments.
So far this year, Aviva Investors’ Asia Pacific Property Fund made an entry into Melbourne, by purchasing 447 Collins St for $67 million.
“With foreign buyers underpinning the strength in the Australian office market and continued uncertain economic times in Europe, offshore investors see Australia as a safe haven with a stable growth outlook on the back of the strengthening resources boom,” he added.
Bowman said that aided by favourable tax structures, the Australian market is viewed as having a transparent legal and regulatory system with strong and enforceable leasing covenants with the Melbourne and Sydney offices markets the main Australian focus of overseas investment.
E&Y and API (Vic) found that the Melbourne office sector showed a total return of 10.5% at the end of 2011.
“Victoria and New South Wales have equally benefitted with purchasers coming from Germany, Singapore, South Korea, Malaysia and China,” Bowman added.
E&Y and API (Vic) found that the total vacancy rate for the Australian office sector stands at 7.4% with net absorption of around 240,000 sqm over the last 12 months, 20% higher than the historical norm Foreign investors are buoyed by this low vacancy rate and see it as a precursor to solid rental growth.
Bowman said the Melbourne the CBD office market looks even better with historical vacancy rate of 5.3% compared to a long term average of just over 10%.
“When vacancy rates get below 8%, that’s when we see net effective rental growth, although the economy is slowing and there has been some layoffs, particularly in the white collar sector, this is nothing like the early 1990s when we had a double whammy over recession and an oversupply in office space.
“This time around developers and banks are better disciplined and when economic conditions improve, the office sector is set for double digit growth.”
Bowman concluded that Australian superannuation funds will also become increasingly active in the Australian property market during 2012 as they look away from riskier overseas investments, which impacted on the Future Fund and other local funds in 2011.
“It is going to be a very active office investment market in 2012 and local super funds are going to have to actively compete with Asian and European investors as the Australian office market will once again by the darling of investors worldwide.”
PropertyReview
