Australia’s alternate CBDs come first for overseas investors
Stock shortages and pressure to diversify are forcing overseas investors to look beyond Australia’s major East Coast cities to the country’s other CBD markets
Stock shortages and pressure to diversify are forcing overseas investors to look beyond Australia’s major East Coast cities to the country’s other CBD markets.
While the hubs of Sydney and Melbourne continue to power Australia’s investment markets, attracting record-breaking capital from both local and offshore investors, stock restrictions are encouraging investors to increase their exposure to Brisbane, Adelaide and Canberra.
In Brisbane, foreign investment almost doubled across the office sector increasing to A$2.56 billion in 2017 from A$1.30 billion in 2016, according to Real Capital Analytics. Deals have been struck recently from the likes of GIC, Ascendas, Keppel Capital , M&G and Firmus Capital.
In Adelaide, Singapore-based Mapletree is the latest foreign investor to expand their mandate with the record-breaking A$202.5 million purchase of the city’s flagship office building ANZ House.
The Mapletree deal was the largest office transaction in Adelaide’s CBD history, and testament to the city’s burgeoning CBD landscape and growing reputation on the world stage.
“Offshore groups are finding it increasingly challenging to deploy capital in the core eastern seaboard markets, especially in the A$50 million to A$250 million price point where liquidity is exceptionally deep,” said Stuart McCann, JLL’s Head of International Capital, Australia.
McCann says that out of the A$24 billion in offshore capital that bid on JLL-run major campaigns in 2017, A$21.1 billion failed to find deployment. The trend has continued into 2018 with offshore capital making up 65 percent of bids on JLL campaigns under $350 million so far this year.
As a result, foreign investors are casting their nets wider, looking to markets such as Brisbane and Adelaide where they can “gain exposure to higher yielding prime grade assets which are also underpinned by very defensive capital value rates per square metre,” explained McCann.
“While prime yields in the Brisbane CBD office market have tightened, the spread between Brisbane and Sydney has widened significantly. The long term average spread between Brisbane and Sydney CBD average prime yields is 66 basis points. At the end of last year, that spread was 143 bps.”
In 2007, just 35 percent of all international visitor nights in Queensland were spent in Brisbane. That figure increased to 48.5 percent in 2017. The city is set to benefit as investors buy into the booming tourist scene with an estimated A$44 billion of infrastructure and investment over the coming years.
Late 2017, AMP Capital completed the largest single-asset retail transaction ever recorded in Australia with its purchase of a 50 percent stake in Indooroopilly Shopping Centre in Brisbane for A$800 million.
In 2017, the Adelaide market saw new entrants such as Credit Suisse Asset Management, AEP Investment Management and more recently, Mapletree, according to Jamie Guerra, Managing Director of JLL’s South Australian business. “We expect that Adelaide will continue to attract global capital in 2018 as the physical markets improve and provide greater confidence in leasing activity.”
With the tide of offshore capital flowing into Australia expected to continue this year, Australia’s secondary cities will continue to benefit.
Investment is also strong in Canberra. Asian-sourced capital accounted for 45 percent of total capital flow in 2017, including from the purchase 50 Marcus Clarke Street for A321 million in the first quarter by Mirae out of South Korea. Sales volumes totalled A$861.7 million for the year across 19 transactions.
The trend is playing out across the world, with high prices in gateway markets forcing investors to look to cities they previously wouldn’t have considered.