Investment in Australian commercial real estate fell in the final quarter of 2012 but the outlook remains bright for 2013 as global investor confidence rises.
Over the December 2012 quarter, Australian investors – both offshore and local – invested $3.9 billion in commercial property, compared with US$4.2 billion in the September quarter – a decline of 6%, according the latest global real estate report from Jones Lang LaSalle (JLL).
For the calendar year, investment in Australian commercial real estate was up 6% to US$16.5 billion compared with US$15.5 billion in 2011.
Sydney ranked 14th biggest capital city commercial property investment market, attracting around US$6 billion from investors, with London ranking first (around US$30 billion) and New York second (US$25 billion).
The report notes that Australia was boosted by a number of record sales in the hotel sector including the largest ever single asset sale (Shangri-La Sydney) and hotel portfolio sale (Marriott portfolio).
“Capital was primarily sourced offshore, accounting for nearly 80% of the overall dollars invested. 2012 will provide a good barometer for the Australian hotel investment landscape in 2013,”says JLL.
JLL is anticipating that global real estate investment volumes will grow in 2013 by a further 10 % to 15% on 2012 levels, with Australia continuing to be the destination of preference for many institutional investors.
Australia was a solid performer in the Asia Pacific region over the year – substantially better than China (a 26% decline in investment), Singapore (-8%) and Hong Kong (+2%), on a par with Japan but below the standout regional market, South Korea, where investment increased by 14% to US$11.3 billion.
The USA was the top global commercial property investment destination with US$163.7 worth of assets changing hands in 2012, an increase of 11% on 2011.
JLL’s head of investments in Australia, John Talbot, said that globally, and in Australia, the final quarters of 2012 were marked by subdued leasing markets but high levels of investment activity.
“Evidently, global investors are willing to look through a temporary slowdown in rental growth and take a longer-term perspective on real estate returns.
“Within the Asia-Pacific region, Australia continues to be the destination of preference for many institutional investors.
“As we move into 2013 there is no evidence that the attractions of Australian assets are weakening.
“Through 2013, we expect to see continued pressure on yields at the upper end of the market as domestic investors return, challenging offshore investors for ownership of premium grade assets across all real estate sectors,” he says.
Cross-border purchases totalled nearly US$20 billion in 2012, equivalent to 21% of all acquisitions. Australia, Japan, China and Hong Kong accounted for 80% of the region’s cross-border acquisitions, while Singapore was the source of one-third of all cross-border capital in the region.
“Opportunities continue to exist for private debt funds to fill the void left from the exodus of European lenders in Asia Pacific, and senior lenders remain very competitive, with lending margins tightening over the past year,” says JLL.
“Meanwhile, banks are still cautious around the impact that Basel III regulatory changes may have on their commercial real estate portfolios.”
Globally, commercial real estate investment volumes totalled $436 billion in 2012, according to JLL preliminary numbers, a slight increase over 2011’s $435 billion and a 36% increase over 2010.