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Jones Lang LaSalle Report: commercial property will remain attractive relative to other asset classes in 2013
AUSTRALIA, 21 FEBRUARY 2013 – Australian Real Estate Investment Trusts (A-REITs) were back on the acquisition trail in 2012, acquiring approximately $1.2 billion worth of Australian office assets – the first time volumes were above the $1 billion mark since 2007.
According to Jones Lang LaSalle’s Office Investment Market Review and Outlook 2013, A-REITs were the third largest buyer cohort (13%) after offshore investors (42.9%) and unlisted funds (16.2%).
The Report highlights the performance of Australian commercial property markets in 2012 as a year of solid returns, the highest level of major office transactions since 1987 and an all-time record for offshore investment.
Head of Office Investments – Australia at Jones Lang LaSalle, Rob Sewell said commercial property would remain attractive relative to other asset classes in 2013.
“The investment case for Australian commercial property over other assets classes remains compelling.
“In 2012, Australian property companies raised $1.4billion in the corporate bond market – the highest figures since 1999.
“A-REITs and unlisted funds have diversified their sources of funding and are less reliant on the domestic banking sector. The corporate bond market has enabled well-rated groups to cut borrowing costs and extend maturities.
An investment is typically funded by a combination of equity and debt, assuming an investor has a cost of equity of 9.50% and is using 30% leverage. The weighted average cost of capital (WACC) has fallen by 55 basis points to 8.20% over the past 18 months.
“A reduction in the cost of debt has reduced the WACC and made commercial property investment more attractive,” said Mr Sewell.
Despite a volatile investment market in 2012, the numbers out of the Australian office markets were firm:
• Australian commercial property returns were solid. Jones Lang LaSalle’s total return index for the five main CBD office markets and Canberra delivered a result of 10.05% in 2012;
• Australian commercial transactions were the highest since 1987. In 2012, $9.38 billion worth of office transactions were recorded – the highest levels in the past 25 years since detailed monitoring by Jones Lang LaSalle commenced. Excluding the de-listing of CQO and the $2.1 billion capital commitment to the International Towers at Barangaroo South, transaction volumes were $5.63 billion – a similar result to 2011 transaction levels;
• Offshore investment in Australian office markets recorded a new record high. In 2012, offshore groups accounted for 42.9% of total office transactions – an all-time record.
• A-REITs acquired approximately $1.2 billion worth of office assets in 2012. This is the first time volumes were above the $1 billion mark since 2007. In 2012, Australian property companies raised $4.1 billion in the corporate bond market – the highest figure since Bloomberg data began in 1999.
Mr Sewell said, “The large volume of sales in 2012 plus a massive uplift of the pricing of office REITs is an indication of the popularity of the office sector.
“We saw a clear change in office markets in the third quarter of 2012. What we saw in the markets up until this point was a lack of confidence, a lack of commitment by managers to transact which led to a lack of decision making.
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