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Norway, US and Japan lead next wave of offshore funds heading towards Australian
A huge, new wave of offshore money is building up for investment into Australian commercial real estate with Sydney the "default" location for first-time investors, according to investment adviser Andrew Cannane.
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/i/b/a/q/7/image.related.afrArticleLead.620x350.gkv71v.png/1447143614200.jpg[/img]Sydney commercial property market would continue to be the entry point for first-time offshore investors, though some fear a "Black Swan" event. Ryan Stuart
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by Larry Schlesinger
A huge, new wave of offshore money is building up for investment into Australian commercial real estate with Sydney the "default" location for first-time investors, according to investment adviser Andrew Cannane.
Mr Cannane, the head of corporate client services at financial services group Perpetual, said Japanese, Norwegian and American pension funds as well as Chinese insurance companies were all looking to invest in Australia.
Possible "dial changes" to the already unprecedented flow of offshore capital into Australian real estate, he told the Atchison Consultants Annual Global Real Assets Forum in Melbourne, could come from Norges Bank, Norway's sovereign pension fund with "$1 trillion dollars of oil money" to spend.
Norges were part of a consortium that sought to buy the Asia Square tower in Singapore for about $3.5 billion. While the deal did not go ahead, Mr Cannane said the likelihood of Norges investing in Asia Pacific in the year ahead "seems to be high".
Another player, he said, could be Japan's General Pension Fund. "There is some legislation coming out that will allow them to buy real estate beyond their current fixed interest and cash remit.
"There's also US pension funds. We are starting to see them visiting Australia on tours to raise their understanding of the market. It is likely they won't invest on their own but will want global investment managers to invest on their behalf.
"But we expect to see them active in the market," he said.
'SIGNIFICANT ACTIVITY' FROM CHINA
Mr Cannane added that he expected "significant activity" from Chinese insurance companies in Australia following recent deals like China Investment Corporation's $2.4 billion acquisition of the Investa portfolio.
"In summary there seems to be no problem among the major players raising capital and closing new funds. Blackstone, recently raised $24 billion [for a global buyout fund]," he said.
Mr Cannane said the Sydney commercial property market would continue to be the entry point for first-time offshore investors, followed by Melbourne.
He quoted data from Real Capital Analytics showing that since 2008, Sydney had risen from 48th most actively traded property market in the world to ninth, with Melbourne also rising in prominence from 63rd to 16th globally.
"When I talk to overseas investors making their first foray into Australia, the Sydney commercial market is pretty much their default destination," Mr Cannane said.
But he warned also that building in the minds of the global investors were fears of an unexpected "Black Swan" event. "There is an element of caution out there too," he said.
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Now the Yanks are coming as well...
GPT sells Forestway centre to US funds giant Invesco
Ben Wilmot
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Commercial Property Editor
Sydney
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GPT will use the proceeds from the sale of the Forestway centre to pay down debt.Source: News Corp Australia
[b]US funds giant Invesco Asset Management has bought the Forestway Shopping Centre in Sydney from the GPT Wholesale Shopping Centre Fund for $112 million.[/b]
The sale was struck at a price representing an initial yield of 5.97 per cent and is a 20 per cent premium to the asset’s June 30 2015 book value.
GPT’s shopping centre fund manager Michelle Tierney said there had been strong interest in the Frenchs Forest asset and the sale reflected that demand.
“The fund is very pleased with the result, having capitalised on the recent investor demand for
neighbourhood shopping centres,” Ms Tierney said.
“The proceeds from the sale of this non-core asset will initially be used to pay down debt.”
Colliers International’s Lachlan MacGillivray acted for GPT on the transaction.
Invesco is also closing in on the purchase of an office tower in Sydney’s central business district.
It has agreed to buy the King Street tower that houses the Apple store in a deal worth about $150 million.
The deal on the tower on the corner of King and George streets could see a rare off-market trade of an A-grade tower in the heart of the city.
The building, 77 King Street, houses the glass-box Apple store. But this is owned separately. Invesco has declined to comment on the King Street deal.
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Hotel confidence plummets as offices sentiment surges
[img=620x0]http://www.afr.com/content/dam/images/g/k/f/4/b/6/image.related.afrArticleLead.620x350.gl1jzx.png/1447827017876.jpg[/img]The outlook for commercial property is bright, the latest NAB index shows. Brendan Esposito
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by Larry Schlesinger
Confidence in the central business district hotel market surprisingly tumbled in the third quarter of the year, as property professionals recalibrated expectations for capital growth, the latest NAB Commercial Property Survey shows.
The index shows hotels fell from a positive reading of 38 to zero over the third quarter, with capital values falling 2.8 per cent, based on a survey of 250 commercial property professionals.
But expectations for the office market rebounded, with the index rising from a reading of three to 20. Most of the rebound was in NSW and Victoria, resulting from rising business confidence and demand for more office space from sectors like professional services.
Overall sentiment about commercial property was down slightly, but is expected to rise strongly over the next two years.
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The weaker sentiment for hotels appears to be more a temporary blip than a sustained downturn, with the survey forecasting confidence about hotel returns to rise over the next two years.
NAB senior economist Robert De Iure said weaker sentiment about hotels had been driven by reduced expectations about capital growth, as well as "quite weak" hotel room returns (known in the industry as revenue per available room – revPAR) over the past two quarters.
BACK INTO THE PACK
"The feedback we got is that it's more a reaction to how strong hotels have been over the long term and that the sector is now coming back into the pack," Mr De Iure said.
[img=620x0]http://www.afr.com/content/dam/images/g/l/1/r/0/7/image.imgtype.afrArticleInline.620x0.png/1447810615491.jpg[/img]The outlook for commercial property is strong overall
"It does rebound over the next couple of years," he said.
Sean Hunt, regional vice-president at Starwood Hotels and Resorts, described the NAB findings as "entirely surprising" and not reflected in the performance of Starwood's suite of luxury hotels.
"Occupancies are running at 90 per cent across our city hotels. Our new hotels, Sheraton Melbourne and Four Points by Sheraton in Brisbane, made a profit in their first month of operation," Mr Hunt said. "Hotels are really in vogue."
The NAB report forecasts hotel capital values to fall 0.6 per cent over the next 12 months and then rise only 0.3 per cent over the 12 months to September 2017.
By comparison, office property capital values are forecast to rise more strongly over the same periods, at 1.5 per cent and 1.4 per cent respectively, as are industrial (1.1 per cent and 1.3 per cent) and retail (0.9 per cent and 1.2 per cent).
The strongest office market will be NSW, with values rising 3.5 per cent and 2.8 per cent respectively over the next two years, followed by Victoria, with values rising 1.3 per cent and 1.5 per cent. Victoria is forecast to have stronger office rental growth than NSW.
CONTINUE TO STRUGGLE
However, Queensland's office market will continue to struggle, with no pick up in capital values and only a modest rise in rents forecast.
Western Australia's office market, driven by the resources boom correction, will deteriorate further, with capital values forecast to fall 4.8 per cent and 3.3 per cent over the next two years and rents to fall steeply, including a 7.1 per cent plunge over the next 12 months.
"WA is still woeful," Mr De Iure said.
NAB chief economist Alan Oster said it was the first time the outlook for rents had been positive across all sectors – office, industrial and retail – since late 2010.
Retail and industrial rental growth expectations are strongest in NSW, followed by Queensland, and are weakest in Western Australia.
"The survey also points to an improvement in developer confidence this quarter, with the number of developers planning to start new work in the next six months rising to 60 per cent, up from 48 per cent in the second quarter.
"Hopefully, this will translate into stronger building construction, particularly as property developers have also noted a further deterioration in their debt and equity funding situations," Mr Oster said.
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The malls are changing … its massage, nails, dining and edutainment
[img=620x0]http://www.afr.com/content/dam/images/g/k/n/k/3/b/image.related.afrArticleLead.620x350.gl22hq.png/1447831129069.jpg[/img]The crowds at the opening of the new H&M store in Sydney's Pitt Street point to the strength of CBD shopping.Fiona Morris
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by Robert Harley
The shopping centres changed again in the past year, according to the well regarded Urbis Shopping Centre Benchmarks 2015report.
Urbis director of economics and market research, Ian Shimmin, said the specialty stores had performed strongly, particularly in the biggest centres and in the CBDs.
In fact some hard-hit specialty sectors, like books and music, clawed back some ground.
The fastest growing specialty categories were massage and nail bars, with turnover growth in excess of 30 per cent in both regional and sub-regional centres followed by phones and mobile communications.
Mr Shimmin said there was a "clear and consistent trend towards more and better food and beverage in shopping centres with centres like Westfield Miranda and Eastland in Melbourne developing "dining precincts" rather than food courts.
Overall, food and beverage outlets in the large regional centres increased turnover by 5.2 per cent in the year.
Cinema revenue was also up strongly, by 10 per cent in the regional centres as the cinemas introduced better seating and service.
By comparison the traditional anchors, the supermarkets and department stores had stagnated, Mr Shimmin said.
Cannibalisation is playing a part with 82 new supermarkets opened around the country by Woolworths, Coles and Aldi and 24 new discount department stores.
"This level of new store openings in an otherwise low growth and low inflation market has resulted in supermarkets and discount department stores in shopping centres having a quiet year in terms of top line revenue growth," Mr Shimmin said.
He noted signs that the department stores were "finally being re-invigorated" such as the David Jones format in the new Eastland store in Melbourne.
Urbis noted that occupancy cost for for specialty retailers - rent and outgoings as a proportion of turnover - had declined for the second year in a row, falling to an average 17.3 per cent, as turnover rose but owners focussed on "sustainable rent levels."
Mr Shimmin said the shopping centres would introduce more entertainment for families with play spaces, interactive mall games and other "edutainment."
"Chadstone will soon house Australia's first Legoland, and another edutainment player, Kidzania, is known to be interested in Australia," he said.
Mr Shimmin said retailers were giving "far more attention to shopfront design, visual merchandising and product differentiation in the better centres in Australia now, and consumers are responding positively."
Over 20 per cent of regional centres are under development and another 48 per cent are planning work.
"We're also about to see the outcomes of a wave of development activity, especially in regional centres, and this will introduce new concepts and advances in the design of centres, as well as new technology, all of which will deliver the best possible customer experience," he said.
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Offshore investors eye office towers in Sydney’s suburbs
Ben Wilmot
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Commercial Property Editor
Sydney
Greg Brown
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Property Reporter
Sydney
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An impression of the Australian Technology Park under an ambitious plan put forward by Mirvac.Source: Supplied
[b]More than $350 million worth of suburban office towers are in the sights of offshore investors with Millinium Capital Managers, backed by Asian capital, and Growthpoint Properties Australia, which has South African support, moving to strike deals.[/b]
In the larger play, Mirvac Group has garnered deep interest in the offer of Woolworths head office at the Norwest Business Park in Sydney’s northwestern suburbs with Millinium believed to be heading the bidding for the $300m-plus asset.
In August Mirvac won the supermarket giant for a new long-term lease at Norwest. Woolworths agreed to lease almost 45,000sq m across several buildings in the area owned by Mirvac.
Woolworths extended its lease on the buildings, at 1 Woolworths Way, by 15 years, with the lease starting from August next year, a key drawcard for a field of about six bidders, in both a full and half interest, executives said.
The buildings were valued in 2013 at more than $250m but executives said it could sell on a tight yield approaching 6 per cent. Woolworths has been in the precinct since 2005 and is unlikely to shift.
A sale would continue the reorganisation of Mirvac’s office portfolio. Last week it led a consortium that won the rights to the Australian Technology Park in Eveleigh near Sydney’s CBD.
It will develop a $1 billion complex for the Commonwealth Bank, which it will own in equal thirds with AMP Capital Wholesale Office Fund and Sunsuper.
Millinium has been an active player in Sydney real estate as it has expanded as a funds manager.
It advised South Korean investment giant Mirae Asset Global Investments on its $340m purchase of Sydney’s Four Seasons Hotel in 2013. That asset has since surged in value and the group may see a similar lift in the value of suburban assets on the horizon.
JLL and Savills are selling the Norwest Business Park asset but declined to comment as did the parties.
In Melbourne, Growthpoint Properties Australia bought a $50.3m office building from a venture between Frasers Property Australia and Commercial & Industrial Property.
The five-storey office complex building will show a yield of 7.25 per cent.
Singapore’s Mapletree Investments also has been buying in Sydney, picking up a Macquarie Park office complex from fund manager CorVal for $106m, for a vehicle it is seeding with local suburban assets.
There has been a surge of capital into office markets. Savills said in a market update that sales activity in the 12 months to September had hit $7bn, an 88 per cent leap on the previous 12 months.
The agency estimated that further large single assets and portfolios in the market could see more than $3bn, quadrupling that of pre-GFC numbers.
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Commercial property has its best 12 months since the GFC
[img=620x0]http://www.afr.com/content/dam/images/g/l/5/f/p/l/image.related.afrArticleLead.620x350.gl5mjc.png/1448282900966.jpg[/img]Melbourne, along with Sydney, were the stars of the office sector with total returns for the year of 14.7 per cent helped by strong capital growth. Leigh Henningham
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by Robert Harley
Australian commercial properties, the office towers, shopping centres, logistics facilities and hotels, have just delivered the best total return – income and capital growth – since the heady pre-GFC days of 2008.
The average of the total return for the 12 months to September 30 was 12 per cent, based on a 6.9 per income return and 4.8 per cent capital growth, according to the PCA/IPD Australia Property Index which covers $151 billion in assets and is now produced by MSCI.
Office property was the big improver, and industrial facilities showed the best total return, but the real stars were hotels, with a 14.2 per cent total return, and the small healthcare sector at 18.6 per cent.
MSCI's vice president, real estate in Asia Pacific, Dejan Radanovic, said the property investment cycle was in an upswing phase with the Australian All Property Return at its highest level since the September 2008 quarter, and above the long-term average, of 10.4 per cent, for the third consecutive quarter.
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"The aggressive tightening in cap rates is being seen more broadly across the property market, spurred on by the lower cost of debt capital, and an unprecedented level of investment activity," he said.
Mr Radanovic said that despite the tightening in cap rates, the spread between commercial real estate cap rates and the bond rates was still high and would continue to be favourable "as long as interest rates remain relatively low in the short run".
All the key sectors delivered in the year to September but with significant variations within the sectors.
Sydney and Melbourne were the stars of the office sector with total returns for the year of 14.7 per cent helped by strong capital growth. In Perth, where values are falling in the wake of the resources decline, the return was just 4.5 per cent.
PARRAMATTA STAR
Within Sydney, it was the lower grades of central business district stock that shone, helped by the "stock withdrawals for residential conversion", and outside the CBD, Parramatta was the star with a total return of 16.3 per cent.
The best performances in the retail sector came from the neighbourhood shopping centres (14.4 per cent) and the housing-boosted, large format retail centres (13.8 per cent) which were well ahead of the flagship super and major regional centres (8.6 per cent).
Mr Radanovic said the overall macro-economic conditions had supported the retail sector with historically low interest rates, improving labour market conditions, positive signs in consumer and business confidence, strong housing market, low petrol prices and strong tourism.
But like 2008, is this a market headed for a fall?
MSCI executive director, Anthony De Francesco said the overall investment performance was likely to strengthen over the short term, underpinned by buoyant capital markets, and strong offshore appetite, which would deliver further cap rate compression.
"A clear risk to the asset class remains the increasing disconnect between the strong capital market conditions against somewhat softer space market fundamentals," he said.
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BDO warns the REITs that interest rates can go up
[img=620x0]http://www.afr.com/content/dam/images/g/j/7/8/a/6/image.related.afrArticleLead.620x350.gl9kfh.png/1448608691437.jpg[/img]In 2014-15, property valuations had increased by 9.6 per cent. Supplied
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by Robert Harley
Rising interest rates are the greatest challenge to the Australian Real Estate Investment Trusts according to the BDO A-REIT Survey 2015, the 21st annual survey published by the BDO Corporate Finance Team.
BDO, as well as A-REIT executives interviewed, warned about the current "lower for longer" mantra.
"A-REITs will need to take a long-term view on interest rates, understanding that the cost of debt could go back up in the medium term, perhaps significantly, which would put pressure on earnings," BDO's national head of real estate and construction, Sebastian Stevens said.
"Historically cheap debt provides temptation for A-REITs to make riskier investments," he said. "As interest rates increase, this could create issues for A-REITs who have not approached the current interest rate environment conservatively."
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BDO noted that average sector gearing had risen marginally, to 32.9 per cent, as had the weighted average cost of debt, to 5.4 per cent.
Once again the survey rated the performance of the 41 A-REITs in 2014-15 on a range of financial and investment criteria.
Top of the list was the $745 million ALE Property Group, the owner of Australia's largest portfolio of freehold pubs, and a popular choice with strong, long-term, shareholder returns, including an average of 16 per cent a year for the past decade.
PROPERTY VALUATIONS INCREASED
ALE managing director, Andrew Wilkinson, said that in 2014-15, property valuations had increased by 9.6 per cent, distributions by guidance by 19 per cent and investors had better understood the upside in future market rent reviews.
He also warned that for the sector, "a key challenge will be understanding that short- and long-term interest rates can also go back up".
BDO noted the non-traditional property asset classes, such as pubs, storage, healthcare and childcare had been the top performers.
Mr Stevens said that while niche A-REITs did not represent a significant proportion of the sector, they were a fast-growing asset class.
"Consolidation and inorganic growth through acquisitions among these specialised trusts are looking likely as they gain more of a foothold in the market."
Overall A-REITs had a good 2014-15, helped by earnings growth, asset valuation gains, the low cost of debt and the search for yield.
Mr Stevens said that consolidation was likely to remain the favoured strategy by A-REITs looking to strengthen their portfolios, due to the strong competition for quality assets from both domestic and offshore markets.
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- Jan 5 2016 at 12:15 AM
- Updated Jan 5 2016 at 12:15 AM
Christmas property deals top $1b as momentum builds for strong 2016
[img=1022x0]http://www.afr.com/content/dam/images/g/l/y/w/1/a/image.related.afrArticleLead.620x350.glyros.png/1451897566774.jpg[/img]A quarter share of Tower One at Barangaroo sold to Asian investors for $350m over the holidays. Wolter Peeters
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by Larry Schlesinger
If the string of big property deals that closed out 2015 was any indication of appetite for commercial property, then 2016 is shaping up as another big year.
More than $1 billion worth of real estate changed hands over the Christmas and New Year holiday period, taking total deals for 2015 to $35 billion with investment evenly split between offshore and local groups, according to Colliers International.
Sydney was the preferred location for investment over the holidays with office property the most sought after asset class followed by residential development sites, logistics warehouses and retail property.
End-of-year deals were led by Lendlease's $350 million sale of a quarter share of International Tower One to a large unnamed Asian institutional investor, joining Qatar Investment Authority and the Lendlease-managed Australian Prime Property Fund Commercial as investors in the tower and precinct.The deal was one of a number of Christmas acquisitions by Asian investor groups. Others included South Korea's FG Asset Management paying $225 million for the 26,000 square metre Louisa Lawson Building in Canberra tenanted by the Department of Human Services and Singapore's Ascendas REIT paying $76.6 million for a 38,500 square metre logistics facility in Western Sydney occupied by Australia Post.
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Offshore investment was not just confined to Asia over the holidays with the South African-backed Investec Australia Property Fund acquiring a Newcastle office property for $56.7 million.
The swathe of international deals came as a Colliers International survey, released just before Christmas, ranked Melbourne and Sydney second and third most favoured markets by global property investors behind London.
"Demand for Sydney assets will continue on the back of significant infrastructure investment in New South Wales, with metropolitan markets being a major focus for investors in 2016," said John Marasco, Colliers International managing director of capital markets and investment services.
"In Melbourne, demand is still very much being driven by strong activity in the education sector."
[img=1022x0]http://www.afr.com/content/dam/images/g/l/y/6/s/1/image.imgtype.afrArticleInline.620x0.png/1451737918319.jpg[/img]The Louisa Lawson Building in Canberr sold to Korea's $225 million was the biggest commerial property deal in the ACT for 2015. Jamila Toderas
The Christmas period also capped off a strong flow of capital into Melbourne's residential land market with ASX-listed PEET Limited paying $90 million to buy Little Green, a 123 hectare partially developed residential land estate in Tarneit in Melbourne's outer west.
The PEET deal followed December acquisitions by Stockland of a townhouse site in Melbourne's south east and China real estate giant Dahua paying $60 million for a 63 hectare greenfield site in the west from Lendlease.
"The medium-term outlook for the Melbourne residential market remains positive," PEET managing director and CEO Brendan Gore said.
Outside of property acquisitions, there was also plenty of corporate activity over the Christmas period led by Mirvac Group, which struck a deal with sovereign wealth fund giant China Investment Corporation to manage its $2.5 billion portfolio of Australian office towers acquired from Investa Property Group last year and also formed a joint venture with Chinese insurance giant Ping An's property arm to develop residential projects in Australian cities, starting with a $200 million apartment project in Sydney.
[img=1022x0]http://www.afr.com/content/dam/images/g/l/y/w/s/7/image.imgtype.afrArticleInline.620x0.png/1451877075144.jpg[/img]Germany's Deka Immobilien sold its logistics facility at Greystanes Industrial Park to Ascendas REIT for $77m
Another corporate end-of-year deal was Discovery Holidays Park paying $151 million to take over ASX-listed Aspen Group's unlisted parks fund.
Read more: http://www.afr.com/real-estate/christmas-property-deals-top-1b-as-momentum-builds-for-strong-2016-20160104-glyros#ixzz3wI8TOhET
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