Australia Commerical Real Estate

[greengiraffe]

Free access for China after FIRB lifted

Larry Schlesinger and Matthew Cranston
522 words
20 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Chinese investors will get almost ­unfettered access to Australian ­commercial real estate under new Foreign Investment Review Board rules that form part of the China-Australia Free Trade Agreement.

Under ChAFTA, private Chinese investors will be able to buy commercial property up to a value of $1.078 billion - well above any commercial investment to date - without requiring FIRB approval, putting them on an even footing with US and New Zealand investors.

The current commercial property screening threshold is just $54 million.

Changes to the commercial property screening threshold were confirmed by a spokesman for the Department of Foreign Affairs and Trade. They bring commercial property FIRB rules in line with private business investments screening thresholds under ChAFTA.

Existing arrangements for the screening of foreign investment in residential real estate remain unchanged.

While FIRB did not block any foreign investment proposals in 2012-13 and just 13 real estate proposals in the previous year, Property Council of Australia chief executive Ken Morrison said the significant raising of the threshold would encourage more investment "in any case". "It's certainly a good thing."

Mr Morrison said ChAFTA would create a two-way flow of investment despite Chinese government's restrictions on property ownership.

"It will create opportunities for Australian property developers and property service providers. The amount of construction under way in China, presents a huge medium-term opportunity," he said. However, he said, restrictions on Chinese land ownership – typically 40 to 50 year leaseholds for commercial property and 70 years for residential property – would play on investors's minds, while issues of transparency and the certainty of law still made real estate investment in China difficult. But, he said, the framework of the ChAFTA would create "more evenhanded access for ­Australian investors". "More investors will have a second look at China and investigate opportunities," he said.

Michael French, partner at Norton Rose Fulbright Australia, said lifting the FIRB screening threshold for commercial property investment was a positive step forward. However, he said, changes to enable the government to screen investment proposals in agricultural land valued from $15 million and agribusiness from $53 million could be seen as a negative step by Chinese private investors.

Minter Ellison corporate lawyer Matthew Hibbins, who has worked in Hong Kong on cross-border deals, said: "In the last 18 months we have seen a trend of increasing investment in Australia from the Chinese private sector across a range of assets classes.

"The liberalisation of Australia's foreign investment rules for the Chinese private sector will unlock significant investor interest from this sector in commercial real estate and Australian business generally," he said.

Baker & McKenzie's head of China Group in Australia John Mollard, who spent seven years in China, welcomed the new changes. He said they levelled the playing field with other recently signed FTAs.

Key points Chinese investors will be able to buy property up to $1.078b, equal to US or NZ. Ken Morrison of the Property Council says ChAFTA would generate a two-way flow, despite China's restrictions.


Fairfax Media Management Pty Limited

Document AFNR000020141119eabk0000z

[greengiraffe]

Industria warns of technology park lease woes
BEN WILMOT THE AUSTRALIAN NOVEMBER 21, 2014 12:00AM

THE APN Funds Management-run Industria REIT yesterday warned that business and technology parks were experiencing ­difficult leasing conditions, particularly in Brisbane.

Industria REIT, which has 18 technology park and business park assets along the eastern seaboard, is one of the new breed of industrial property trusts that listed on the Australian Securities Exchange last year.

Fund manager Laurence Parisi told yesterday’s annual general meeting that the business and technology parks had been hit with high vacancy rates nation­ally, along with rising tenant ­incentives.

“There remains a reluctance to enter into new leases,” Mr Parisi said, though he pointed to a pick-up in NSW. “We have seen an improvement in the Sydney market. However, Queensland remains challenging.”

Mr Parisi said management was focusing on future lease expiries and he noted that market conditions were “more challenging than foreshadowed at the time of the IPO, specifically in terms of new leasing deals”.

“Despite a difficult market, we have completed over 5900sq m of leasing transactions,” he said. “There is currently a good level of tenant inquiry across the portfolio and we are confident that in part this inquiry will convert to leases.”

Mr Parisi said the real estate operating environment seemed to be lagging the early signs of a market turnaround, which he put down to softer domestic business conditions.

“Sydney and Melbourne are showing signs of uplift in demand; we expect Brisbane to lag given the effects of the resources downturn,” he said.

Industrial investment markets shot up this year, driven by strong foreign and domestic interest. “Asset values are appreciating as demand and the appetite for investment-grade real estate gathers momentum, which will lead to tightening capitalisation rates,” he said.

Industria reiterated first-half financial-year 2015 distribution per security of 8.36c and flagged that further guidance would be provided in February.

“Guidance for the financial-year 2015 will be subject to a number of leasing transactions currently under negotiation completing in a timely manner, in particular the existing vacancies within the Brisbane Technology Park and Rhodes Building C,” Mr Parisi said.

[greengiraffe]

Charter Hall Group buys $171m portfolio
BUSINESS SPECTATOR NOVEMBER 24, 2014 9:29AM

Charter Hall’s David Harrison has announced a $171m acquisition Source: News Corp Australia
CHARTER Hall Group, through three of its managed partnership funds, has acquired an industrial portfolio comprising six assets and valued at $171.4 million.

The industrial portfolio is currently leased to the Australasian poultry producer Inghams Enterprises, and the purchase reflects an average initial yield of 7.82 per cent, benefiting from a weighted average lease expiry by income of 22 years.

As part of the transaction, Inghams will remain responsible for all capital expenditure and structural repairs on the properties. The portfolio is 100 per cent leased to Inghams with initial lease terms of between 20 and 25 years.

“The six properties are all well located in strategic industrial locations, with high underlying land values underpinning the long term triple net cashflow,” Charter Hall (CHC) joint managing director David Harrison said.

Charter Hall has acquired $775m worth of portfolio purchases since August 2014, taking the group’s total industrial portfolio to $2.35 billion with a weighted average lease expiry of 10.2 years and average rental growth exceeding 3 per cent per year.


Business Spectator

[greengiraffe]

Axa outbid for office buildings in Sydney and Melbourne
THE AUSTRALIAN NOVEMBER 27, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney
Sydney Harbour city scape, skyline. Generic
Axa Investment Management has lost out in its bid to buy ­office buildings in Sydney and Melbourne. Source: News Limited
AUSTRALIA’S hot commercial property market has seen insurance giant Axa Investment Management defeated in its bids to buy hundreds of millions of dollars of ­office buildings in Sydney and Melbourne.

Axa had a target to buy $500 million in property, and while unable to fulfil this, was still keen on Australian investment, according to Frank Khoo, Axa Investment Management’s head of real estate in Asia.

The company made a number of bids for office towers in Sydney and Melbourne in the last year, but only managing to buy the NSW headquarters of Australia Post in Strawberry Hills with the local Eureka Funds Management for $168m.

“We continue to look at Australia as a place to deploy capital, because as an insurance company, Japan and Australia are the two most developed countries in Asia and our two preferred countries,” Mr Khoo said from Singapore.

“We’re buying for other insurance companies or pension funds, and because of asset liability management, they still preferred to go into developed countries to buy income-producing assets.”

Mr Khoo said Axa was talking to various builders about developing their own office towers, despite yields compressing and leasing demand still “a bit” weak.

While he wouldn’t be drawn on which developers Axa was in talks with, he said any deal would not be similar to the agreement between UBS and Grocon for funding across multiple projects.

“We’ve continued to bid for one or two assets, but the market has compressed quite a lot since we bought Australia Post, and we are trying to do our own assessment on whether the market is overpriced or not,” he said.

“As the market gets more and more pricey, we’ll look at alternatives (to acquiring existing buildings), and while some of our competitors can only buy completed assets, we have the flexibility of looking at forward-funded projects.”

The volatile Australian dollar was one unresolvable issue, Mr Khoo said, with hedging costs reducing returns considerably.

“It depends on how much leverage you put on, but with 50 per cent leverage you would be looking at a 2 per cent reduction in return, which is quite a lot if it’s a core return,” he said.

But financing costs had come down, Mr Khoo said, with banks preparing to lower their spread and give investors higher leverage.

Axa has said its plans in Australia would be half funded by debt, with a third from Axa and the rest by third-party capital.

[greengiraffe]

Office space story mixed bag
BESA DEDA THE AUSTRALIAN DECEMBER 08, 2014 12:00AM

Office space story mixed bag
Interest from tenants is picking up in Sydney and Melbourne while other capital cities continue to languish. Picture: Chris McKeen Source: News Corp Australia

OFFICE markets around the country are heading in different directions. Interest from tenants is picking up in Sydney and Melbourne while other capital cities continue to languish.

In the latest official jobs data — new figures are out on Thursday — jobs in the year to October grew most in Western Australia. Next strongest was NSW and Victoria.

While jobs growth was the highest over the year in WA, the labour market in Perth is set to soften as the mining investment downturn deepens, leaving the Perth office market with few bright prospects in the near term. At the same time, future office supply is a concern in Perth with 9 per cent expected to be added in the year ahead. Perth CBD already has the highest A-grade office vacancy rate in Australia at 15.8 per cent, according to property group JLL.

It is a different story in Sydney and Melbourne. Business conditions are firming, helping encourage tenants to commit to leases and relocate to new office space.

The Sydney CBD has had 12 months of positive net absorption in the office space.

Sydney also has little office construction nearing completion until the middle of next year when the $6 billion Barangaroo project starts to come on line.

Sub-lease availability in Sydney, perhaps not surprisingly, has continued to fall. We would expect office vacancy rates in Sydney even to fall modestly until the middle of next year.

Melbourne’s CBD has also had net absorption (expansion) for past year. Similarly to Sydney, relocation back to the Melbourne CBD has helped the net take-up of office space.

While the figures for net absorption for Sydney and Melbourne are not great, they show conditions are not deteriorating.

The same cannot be said for other capital cities. Brisbane’s office occupancy levels have fallen for the past 18 months, Perth for the past two years and Adelaide for six months. Meanwhile, the ACT only fell 407sqm in the first half of this year.

Besa Deda is chief economist of St George Bank

[greengiraffe]

Commercial sales tipped to stoke fears of price bubble
THE AUSTRALIAN DECEMBER 11, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney
AUSTRALIA’S commercial real estate markets could be shaken up by merger and acquisition activity early next year, with some landmark properties tipped to change hands at prices likely to spur concerns about a pricing bubble.

Dexus chief executive Darren Steinberg said that listed property trusts appeared underpriced. “Should the disconnect between direct and listed property markets persist, (Australian real estate investment trusts) could appear relatively cheap, leading to further privatisation or sector consolidation activity,” he said.

“Recent small-cap floats are also likely to be subject to consolidation should they trade at a discount to net tangible assets.”

Stockland chief Mark Steinert, who would not be drawn on a Stockland bid for Leighton Properties, said he expected “a few more” floats next year on the back of an improving property market.

This year will finish as a record year for deals with $24 billion of office, retail and industrial property having changed hands to date, according to CBRE. JLL chief executive Stephen Conry said while there had been a substantial inflow of overseas capital this year, there were a number of offshore investors planning to enter the local market within the next year. But fears of a commercial property bubble, first raised by a Reserve Bank note in September, were unfounded because there was no structural issue, but rather overseas investors were following higher yields to Australia, and a lower dollar was increasing the attractiveness of local real estate, according to CLSA analyst Sholto Maconochie.

While the weight of money chasing property has pushed up prices, leasing markets were uneven during the year.

Mr Conry expects the take-up of office space will be positive in 2015, but the overall net absorption would be lower than the decade’s average of 230,000sq m.

Investa Office Fund manager Ming Long said leasing incentives remained stubbornly high across the country except in Sydney. “We will see a two-tier market (in Sydney), with incentives still high for the premium side, while a lot less mid-tier supply will put downward pressure on incentives.”

Despite a patchy commercial property sector, residential developers would benefit from strong population growth. Mr Maconochie said residential developer Mirvac had underperformed, but would outperform next year after it became clear the risk of macroprudential restrictions had been overstated.

Mirvac plans to start work on seven apartment towers in the next year, against an average of two or three towers in the past.

Mirvac chief executive Susan Lloyd-Hurwitz said the possibility of an interest-rate cut had increased, but she expected price growth would moderate.

“Sydney is going to see strong demand continue because there is a very significant undersupply, although parts of Melbourne, like the inner-city investor stock, will slow,” she said.

Ms Lloyd-Hurwitz said Mirvac had restocked its land bank despite rising international competition for sites. “We won’t bid for a straightforward site with approvals already in place; we need an integrated model to unlock value.”

Mr Steinert said internal Stockland forecasts put housing price growth easing to 4-5 per cent in Sydney next year, marginally ahead of other capitals, with Perth lagging behind.

Retail growth would continue at a similar rate to this year, Peter Allen, Scentre’s chief executive, said.

“Notwithstanding recent consumer confidence numbers, the Australian consumer is not broke and will continue to spend,” he said. “In terms of trends, international retailers will expand their businesses across multiple outlets, at different scales, but they will expand across Australia.”

[greengiraffe]

$9bn Investa roadshow planned
BEN WILMOT THE AUSTRALIAN JANUARY 29, 2015 12:00AM

Looking down into the lobby at Deutsche Bank Place in Sydney. Source: Supplied

HEAVYWEIGHT Morgan Stanley Real Estate is pressing ahead with plans to offer up the $9 billion Investa Office platform in the first part of this year with a roadshow of the business slated to be launched in coming months.

Investa’s portfolio of owned and managed assets, consisting of almost 50 buildings, is tipped to draw global interest, as many of the blue chip assets may benefit from the upswing in the leasing market, and the management platform is seen as valuable due its ability to raise funds and for its development capacity.

While the offer of the business — owned by the Morgan Stanley Real Estate Fund VI — was first flagged by The Australian last month, the complex pre-emptive rights between Investa’s balance sheet and its managed funds must be exhausted before a full-scale process can be launched.

However, this aspect of preparations is expected to be finalised soon, and investment banks ­Morgan Staney and UBS, as an ­independent house, have been nominated to advise on the future of the platform. Other investment banks are jockeying for position as any sale is likely to draw major Australian players, including Dexus Property Group, Charter Hall Group, Stockland and ­Mirvac Group, all of whom have ties with offshore institutions keen to boost their exposure to Australia and with plans to expand in the office sector.

While the prize overall will be keenly sought, working through the complex rights held by Investa’s managed funds, Investa Office Fund and Investa Commercial Property Fund, could hold the key to any sales process.

The group’s $3bn wholesale office fund is cashed up and well supported by global institutions, potentially giving it the capacity to acquire assets from Investa’s $2.2bn worth of balance sheet ­assets.

The main co-owned assets include landmark Sydney towers Deutsche Bank Place, 400 George Street, and 1 Market Street, as well as Melbourne’s pre-eminent tower, 120 Collins Street.

The largest property, the $750m Deutsche-occupied tower at 126 Phillip Street, is split three ways between half owner ICPF, with IOF and the Investa balance sheet each holding 25 per cent. The details of the co-ownership agreement are not known but are thought to give all the parties rights in the event of any changes.

In the case of 400 George St, a half interest is held by Investa’s balance sheet.

Property executives said each of Investa and its funds had different boards and The Australian had established they are taking legal advice on their responsibilities to protect the position of their ­investors and maximise returns in the event of any sale.

In a further complication, the group’s listed IOF has the right to buy a stake in the overall Investa platform once it hits $3.5bn of local assets.

UBS analysts said last week that an internalisation of IOF’s management rights would­ ­maximise value for the vendor, that is keen to receive a value both for the management rights and the Investa balance sheet assets.

They suggested that the rights may be sold in part or whole to IOF/ICPF or a friendly third party and valued at them at between $120-$200m. IOF had the capacity to buy up to $800m worth of assets by raising equity before hitting earnings constraints.

[greengiraffe]

Hot property prices a risk to stability, RBA warns
THE AUSTRALIAN MARCH 18, 2015 12:00AM

Greg Brown

Property Reporter
Sydney
Turi Condon

Property Editor
Sydney

THE Reserve Bank of Australia has issued its second warning in 12 months about emerging risks in the commercial property sector, with the board arguing that strong price rises were out of kilter with the tough leasing conditions facing parts of the sector.

In the RBA’s March minutes released yesterday, the board identifies commercial property as being an asset class that may pose a risk to Australia’s financial stability, along with the housing and mortgage markets.

“Members further noted that risks had been beginning to build in commercial property markets, including developers of residential as well as non-residential,” the board said.

“Prices in several market segments had been rising, even as ­vacancy rates remained high and leasing conditions weakened.”

This comes a year after the initial RBA warning, when it said that parts of the office market were at risk of an oversupply.

The latest figures released by the Property Council of Australia showed that empty space in capital city office buildings climbed to 11.2 per cent of the ­market at the end of January, up from 10 per cent in July.

A note by CLSA said the new wave of supply in the major ­Australian CBDs was excessive, with increased tenant demand not enough to offset the extra space. It estimates that Sydney CBD prime vacancy would increase from 8.7 per cent to 13.1 per cent by December 2017.

Dexus Property Group chief executive Darren Steinberg rejected the figures, arguing Sydney’s vacancy would fall to 6.5 per cent by 2018. He said that many of the buildings being withdrawn were prime or A-Grade properties, such as Gold Fields House in Sydney’s Circular Quay.

“On a global scale Australia’s commercial property markets remain very well priced, which is what is attracting offshore capital to Australia,” Mr Steinberg said.

Investa Office chief executive Campbell Hanan said Australian real estate was cheaper than most international markets.

“We are one of the few global markets where cap rates are still higher than they were in 2007 despite the fact that interest rates have halved over that same period,” Mr Hanan said.

Stockland chief executive Mark Steinert rejected there were broad warning signs for commercial or residential property.

Low interest rates and ongoing offshore interest would continue to underpin values for the foreseeable future, he said. “Residential developers will find it difficult to keep going at the current pace ... but that’s not suggesting there are problems,” he said.

[greengiraffe]

Office vacancy down in Sydney and Melbourne
Robert Harley
510 words
16 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Australian business and government leased more CBD office space in the March quarter, 85,000 sq m more, in a shift which helped reduce the vacancy rates in Sydney and Melbourne.

Even the Brisbane CBD, hard hit by the downturn in resources and government demand, enjoyed its first positive quarter of take-up since 2013, as well as a sharp reduction in sub-lease availability, although global real estate group JLL, in releasing the figures, warned lease negotiation in the city would "remain protracted over 2015."

Perth remains the one CBD without any upside; stung by the resources collapse, business handed back more space than it leased and the amount of empty space in the city rose to a national high of 16.6 per cent.

JLL's national director of research, Andrew Ballantyne, said the downward shift in commodity prices would precipitate a wave of M&A activity and consolidation in resources which could stimulate Perth leasing but he expects the Perth CBD vacancy will rise further.

Across the country, office rents remain weak. In Melbourne the average effective rent has risen just 3.8 per cent in the past year and in Sydney, just 1.4 per cent, according to JLL. Elsewhere office rents have fallen, by 17 per cent in Perth, by 11 per cent in Adelaide and by 6 per cent in Brisbane.

Melbourne had the strongest uptake in the quarter with 52,000 sq m leased, with a broad range of industry sectors actively seeking space, said JLL's head of office leasing, Tim O'Connor. "The growth that we noted in the technology sector in Sydney is starting to move the needle on the demand side of the equation in Melbourne," he said.

Sydney was also encouraging with 99,500 sq of space leased in the past year.

Mr O'Connor said Sydney was following the trend of other western finance centres, such as New York and London, where vacancy rates have tightened since 2012.

"Significantly, the finance sector is not the locomotive of growth," he said. "Headcount growth is strongest in the professional services sector - technology firms, management consultancy and mid-tier legal firms."

CLSA analyst Michael Scott said the net absorption for Sydney and Melbourne in the March quarter was a good sign.

"Let's hope it continues," he said. "The question is whether this net absorption continues to grow enough to offset the large amount of new supply coming on across the major CBDs over the next two years and whether we see effective rent growth."

Mr Ballantyne said the lead office indicators were mixed but the trend in job advertisements was a strong lead indicator for leasing inquiries.

The DEXUS Demand Barometer, a key predictor of office demand also released on Wednesday, was down slightly in the March quarter.

It did benefit from a strong rebound in the sharemarket over the quarter, and the relatively positive earnings results for listed Australian companies, as well as the strengthening US economy.


Fairfax Media Management Pty Limited

Document AFNR000020150415eb4g00013

[greengiraffe]

GPT chief warns of office slump
Robert Harley and Tony Boyd
562 words
10 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

The chief executive of one of Australia's biggest commercial property groups has warned the office markets in Perth and Brisbane are moving into a "dangerous area" which could ultimately lead to price crashes.

"I think there is a sufficient oversupply of money looking for investment into Australia, and investment into Australian real estate, that some of the underlying problems associated with the demand from the resources sector are being overlooked," says Michael Cameron, the chief executive of the $8.2 billion GPT Group.

"There's the potential for a continual level of overheating," he warned, followed by a "dramatic slowdown" in Perth and Brisbane.

In a profile interview with BOSS Magazine, Mr Cameron said in this part of the cycle, and with the cost of debt at record lows, real estate fund managers could buy almost any asset and boost earnings.

"As soon as people look at a situation where their growth may be falling off, there is always the temptation for doing silly things," he says.

With the end of the resources investment boom, office vacancies in Perth and Brisbane have soared and rents weakened. At January 1, nearly 15 per cent of Perth CBD offices were empty and in Brisbane over 15 per cent, according to the Property Council. Further vacancies are likely as new towers are completed.

The Reserve Bank of Australia warned last month that despite weak office leasing, particularly in Brisbane and Perth, commercial property prices had continued to rise, driven by ample liquidity, the global search for yield, and most recently, the fall in the dollar.

Mr Cameron warned lag between rising values and falling underlying earnings was a "dangerous area".

"You typically end up in a situation where the demand to acquire the assets really drives the value as opposed to the fundamentals of how the building is operated," he said. "But there's always a cycle, and the abundant level of capital won't always be there to support the valuations of some of those assets in the areas that are being impacted."

He noted commercial property rents had dropped 30 per cent in Perth in the past year compared with a 3 per cent rise in Sydney and Melbourne.

"Our portfolio has been focused entirely on the eastern seaboard because for some years we have predicted a dramatic slowdown in Perth and in Brisbane," he said.

"We've seen markets like Perth as boom and bust. As things slow, that presents opportunities for us to buy, so we'd rather be buying when people are selling and selling when people are buying."

Mr Cameron said the coming Investa Property Group sale, with $2 billion worth of towers on balance sheet along with a significant funds management platform, would attract strong demand which would flow onto the broader market further aggravating the imbalance between capital demand and underlying performance.

"There will also be a secondary impact because in addition to setting prices for evaluations going forward, there will also be a view that those people that are trying to buy into the market that miss out on Investa assets, you'll see their appetite fuelled by the level of activity," he said.

He declined to comment on whether GPT would participate in the scramble for Investa assets.

BOSS Magazine inside today


Fairfax Media Management Pty Limited

Document AFNR000020150409eb4a0001d