Who will lead an expected $2 billion commercial property splurge?

As diplomatic and economic ties between Australia and China improve, we expect investments from mainland China to increase significantly, despite some deterrent tax measures in place.

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Other offshore investment is likely to come from the Asia-Pacific region. There are a few green shoots from Taiwan, India, Malaysia and Indonesia, with investors regularly flying in to assess assets. However, so far, few have taken the post-pandemic plunge.

Other major foreign investors in Australia – such as the UK and US – have been net sellers of property assets.

Since the first quarter of 2017, US investors have sold $1.1 billion of commercial property assets, while UK investors have sold $622 million in total.

US and European investors – many of whom are still underweight in Asia-Pacific real estate – remain focused domestically, mainly due to the macroeconomic environment.

However, they are likely to refocus here once again as the global economy stabilises, which could add further weight to the rush of global capital we expect to see for most asset classes in the months ahead.

Commercial property owners considering a sale could be pleasantly surprised by the level of interest they receive from foreign buyers looking to gain increased exposure in the Australian market.

Although Victorian commercial transaction volumes are down significantly from historic levels – just 10 per cent from last year’s total of $6.7 billion – historically, most activity tends to occur in the second half of the year.

Vendors have been holding their nerve as they assess their options among the volatility created by local and global economic conditions. They have been hesitant to step out into the rain at the risk of getting wet – particularly at the top end of the market – in front of their peers. However, that has not prevented them from testing the waters behind closed doors or via off-market sales.

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The number of publicly available, institutional-grade offerings in Melbourne this year can be counted on one hand, particularly well leased or core assets. However, in middle-markets, investment activity is ongoing, albeit somewhat starved of opportunities.

In the first quarter, JLL ran 15 investment campaigns and received between six and 11 offers on each property – a sound indication of the appetite still in the market.

One metric to watch, going forward, is the range of pricing between the highest and lowest offers – the bid-ask spread. Many local investors are waiting on the sidelines for this pricing discovery process to take its course, but international investors are already getting ahead of the herd by making a move into the market.

Josh Rutman is executive director and head of capital markets Victoria at global real estate and investment management company JLL.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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