Cross-border money characterising investor market

Knight Frank’s Global Cities: The 2016 Report found that this new market environment is characterised by growing cross-border money flows, a push to diversify portfolios, and a willingness to think laterally by looking beyond the traditional sectors of office, retail and industrial.

James Parry, head of institutional sales for Australia at Knight Frank, said an increase in offshore capital inflow has been apparent in Australia and is likely to remain.

“We have seen an increase in Chinese investment into Australia in recent years, driven by a slowing domestic economy, measures to cool the housing market and the relaxation of regulations on overseas investments – all of which have prompted many Chinese investors to seek opportunities abroad,” he said.

“Regardless of whether Chinese investment eventually cools, there is significant potential for increased capital to flow into Australia from places such as Japan, Taiwan and also the US given the lower Australian dollar. Quality institutional assets will continue to hold a place for offshore capital investment.”

Mr Parry said investors are increasingly willing to take more risk to achieve a higher yield in Australia’s office markets, and are now willing to compromise – either through a higher risk appetite and/or alternative geographies than originally intended.

“Two or three years ago, offshore investors were focused primarily on the Sydney and Melbourne office markets, but increasingly, as prices go up and quality stock remains low in these cities, appetite is expanding to other major cities such as Brisbane, Perth, Canberra and Adelaide,” he said.

“In addition, we are seeing a trend of selling suburban assets to offshore buyers, who would previously have only been interested in CBD assets.”

Jeremy Waters, head of international capital markets at Knight Frank, said he expects advanced industrial nations to drive the global economy in the next three years.

“With the US moving closer to a rate rise, the dollar is strong, and American private equity investors are already buying more stock overseas. We see this trend accelerating in 2016. They tend to be more comfortable with a higher risk profile, so we expect increased interest in sites and short-income assets,” he said.

“In Europe, thanks to low bond yields and signs of economic turnaround, we are predicting more opportunist money will come into the market. In general, we see investors casting the net wider, with specialist property rising up the agenda. In part, this reflects a growing desire to seek diversity in a portfolio.”

Mr Waters added that over the longer term, commercial real estate has proved its value within a mixed investment portfolio, notably during times when other asset classes have been unstable.