Almost half (45 per cent) of all real estate investment in the Asia Pacific rim is going into the Australian commercial property market. This is twice the amount being invested in Japan, which is the next biggest market at 19 per cent. Investors are flocking to Australia because of its relatively high yields and its solid economic fundamentals.
A significant percentage of investment in Australia came from offshore investors. According to Jones Lang LaSalle’s head of research and consulting, David Rees, foreign buyers accounted for 29 per cent of direct investment. This figure represented an all-time record.
Rees went on to say that while the big commercial markets of London, Paris, and New York are continuing to attract offshore buyers, a significant flow of investor money is moving into the Asia Pacific region.
Capital flows into Australia are expected to continue throughout 2013, according to Rees. Retail and office properties are broadly in line with long-term averages, and are very appealing to offshore investors.
A lack of Class A assets, which are often sought by offshore investors, “should see yields compress by around 25 basis points at the tight end of the market.”
Rees went on to say that the shift to the Australian commercial property market is part of a global movement as investors move their portfolios from large equity and bond markets to smaller real estate ones.
He said, “A 1% downsizing in global equity portfolios towards non-residential real estate implies a 7.8% increase in global real estate portfolios.
“A 1% reduction in global bond markets in favour of real estate has a similar impact. A 0.1% re-weighting of global real estate portfolios towards Australia implies an increase of around $9 billion in offshore holdings of Australia real estate.”
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