Offshore investors to boost commercial property market

Colliers International’s 2016 Global Investor Outlook found that Melbourne and Sydney are the second and third most popular targets for offshore capital this year, with London taking out top spot.

John Marasco, Colliers’ managing director of capital markets and investment services, said the findings were consistent with global capital flows data for 2015, which currently ranks Sydney third behind London and Manhattan in terms of investment volumes from offshore investors.

“Sydney is considered a global gateway city, so for investors, it ranks up there with New York, London, Singapore and the like in terms of being an attractive destination for investment,” Mr Marasco said. “Melbourne is not far behind and is seen as a good alternative to Sydney.

“Tenant demand is improving in both Sydney and Melbourne, with rental growth now occurring and vacancy rates reducing. This only adds to the appeal of these markets.”

Mr Marasco said 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.

“In Melbourne, demand is still very much being driven by strong activity in the education sector,” he said.

Sustained business and consumer confidence, a strong residential housing market, record-low interest rates and a low Australian dollar contribute to the overall strong interest in Australian property from offshore investors, according to Mr Marasco.

“Australia’s strong economy, transparent market and stable government make it a highly desirable investment destination for investment,” he said.

The report also found domestic investors continue to dominate direct commercial property investment volumes, with just a third of total investment coming from offshore. China is now the largest offshore investor in Australian commercial property.

“Right now, Australian investors prefer to invest locally and we see very little investment offshore,” Nerida Conisbee, Colliers’ national director of research, said.

“This is very different from the previous cycle where Australia was the third strongest investor globally.”

However, Ms Conisbee noted that this trend is beginning to change, with Australian superannuation firms starting to purchase properties offshore.

“It is, however, unlikely that we will see the same levels of offshore investment as we saw previously,” she added.

[Related: ‘Hot' commercial property benefits from share market uncertainty]