Asia Pacific Real Estate Being Targeted by Offshore Investors

Singapore investors lead the cross-border buying spree in 2021, Australia's top destination



According to CBRE's latest In and Out Report, offshore property investors have upped the ante in the Asia Pacific region, accounting for 41% of the $15.6 billion (USD) in office, retail, industrial and hotel property transactions finalized in H1 of 2021.


This compared to a 35% share in H1, 2020, with Singaporean investors leading the charge amid surging buyer interest in the region's Industrial & Logistics (I&L) sector.


CBRE report author Tom Broderick noted that Australia dominated Pacific transaction activity, accounting for $14.6 billion of the $15.5 billion H1 sales tally. This was significantly up from the $10.8 billion in sales recorded in the comparative period in 2020.


The proportion of offshore buyer activity was even higher in Australia at 43%, up from 37% at the same time last year.


"Given the significant impacts brought about by the pandemic, many investors were cautious, resulting in reduced transaction volumes across most sectors in H1 last year," Mr. Broderick said.


"In 2021, sales volumes have doubled, with the relative strength of the COVID-19 response in Australia and New Zealand giving investors confidence to return to the market. Both countries' economies have also rebounded strongly compared with other developed nations across the world, with GDP and the labor market above pre-pandemic levels."


Mr. Broderick noted that Singaporean investors led the charge into Australia, accounting for $3.2 billion of the H1 transaction activity in the Pacific and $3 billion of the activity in Australia - well above the next main capital source, the US, which accounted for $1 billion of Pacific deals (of which occurred in Australia).


However, US buyers were net sellers - offloading $4.26 billion in Pacific assets and contributing to total offshore net capital flows being $276 million across the Pacific.


Industrial & Logistics


The In and Out report highlights that Industrial & Logistics continues to be the most sought-after commercial investment sector in Australia, with offshore buyers snapping up $4 billion in Pacific assets in H1 (representing 59% of total I&L sales) - including shares in three major portfolios sold in Pacific for a combined $4.7 billion.


Given the competition from offshore groups for large portfolios, local investors have been more active at the smaller individual asset level, showing a particular interest in sale and leaseback opportunities.


CBRE Pacific Head of Industrial Capital Markets Chris O'Brien said, "The I&L sector is on track to experience a record year in 2021 from an investment perspective. Foreign investors are continuing to drive strong pricing as they seek to expand their portfolios. These groups have identified that the Pacific region remains behind many other developed countries from an e-commerce perspective, which is expected to fuel continued growth in demand for I&L space."


Office


CBRE's report highlights that office investment is increasing, with a total of $5.8 billion in assets traded across the Pacific in H1, compared to $7.8 billion for the entirety of 2020. $5.5 billion of the H1 sales occurred in Australia.


Offshore capital made up 36% of the total Pacific sales volume, compared with 48% in 2020. This was in part due to international border closures, although the report notes that foreign investors with domestic teams or partnerships remain active and confidence has returned to the office market with investors more certain about the impacts of flexible working and the flow on effects to the leasing market.


Flint Davidson, Head of Capital Markets Office, Pacific said, "Foreign capital continues to show interest in core office assets across the Pacific region, particularly in Sydney and Melbourne. These international investors still see value in the Pacific compared to other developed office markets within the APAC region. Additionally, the return to office strategies of corporates within Australia and New Zealand are further progressed than other parts of the world, which should provide confidence for investors moving forward."


Retail and Hotels


CBRE's report forecasts improved activity for the retail and hotel sectors in H2 2021 following the disruption of 2020.


Retail remains a two-tiered market with investors targeting non-discretionary-based neighborhood centers and also Large Format retail. In turn, some offshore investors have divested CBD assets, with local funds taking the opportunity to purchase trophy-style assets.


On the hotel front, international and rolling domestic border closures continue to disrupt the sector. However, there is early evidence of an improvement as the vaccine rollout across the region advances, which should lead to an improved outlook for the sector.


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