Foreign buyers behind half of 2022 commercial property investment

Commercial Property Update

During the first quarter of 2022, commercial volume of sales recorded $8.69 billion, representing 593 transactions (more than $2 million). The bulk of activity came from NSW followed by Victoria together accounting for 74 per cent of all volume. Of these two states alone we saw that cross border buyers were responsible for 68 per cent and 63 per cent respectively, however, offshore sellers also represented 53 per cent and 64 per cent of these sales.

Looking at the mismatch in buyer and seller capital flows, we see that year on year offshore buyers continue to grow their investment into Australia (along with institutions who also add to their portfolios) while private buyers continue to dwindle. Across Australia this year we have seen 56 per cent of all capital flows into commercial property from foreign sources with 48 per cent representing sellers, a net increase in foreign ownership of eight per cent so far this year.

With only the first quarter of data available, a number of larger transactions during 2022 may skew these results; for the full 2021 calendar year we saw foreign buyers only accounting for 30 per cent of sales, during a period where both REITs and institutions increased their investment levels. Despite this lower proportion, it still accounted for a net increase in foreign holdings of approximately $3.07 billion. Private buyers were the major sellers in 2021 accounting for 41 per cent of all sales resulting in a reduced holdings by 10 per cent of total volume or $6.31 billion.

Over the past 10 years, private buyers on average have exited the commercial market by a rate of $2.4 billion per annum. In contrast, cross border buyers year on year continue to increase their foothold in Australian commercial property at an average rate of $4.93 billion per annum, with institutions also increasing averaging $1.22 billion annually.

Looking ahead, despite Australia’s inflationary concerns it remains an economic “safe haven” location to invest in. The large uptick in overseas interest this year has been clear and with Australia remaining competitive in terms of yield, spreads remain attractive particularly to offshore pension funds and listed vehicles. Despite the high vacancy office market, office transactions accounted for the greatest turnover during 1Q 2022 followed by industrial and retail. Hotel investment has also come back after a quiet 2021 and is anticipated to see further increases in 2022 notably from Singaporean investors, similarly the development site market may see some rebound after a quiet two year period.

We continue to see the greatest investment into Australian commercial assets by both United States and Canadian groups together with Asian nations Hong Kong, China, Singapore and South Korea. European nations have also seen the benefits of Australian assets with Germany, Switzerland and France as well as the United Kingdom also growing their portfolio across all asset classes which we expect to continue.

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