Australian commercial property cross border capital flow up 45%
Jones Lang LaSalle
Australia has seen a 45% increase of property investment funds flowing across its border in 2004 compared to the previous year, according to Jones Lang LaSalle Research. Jones Lang LaSalle Research shows capital flowing in and out of Australia accounts 2% of the total global cross border capital flow and around 20% within the Asia Pacific. Australia has seen solid growth of capital flow compared to the rest of the globe, but has been relatively conservative compared to its immediate neighbours. Global flow increased by 12% to $457 billion in 2004 (on 2003), while Asia Pacific flow increased by (146%) or more than three times that of Australia (45%). Key locations for investment flow in the Asia Pacific were Japan, Hong Kong and Singapore. Jones Lang LaSalles recently released global Cross Border Investment Paper Travelling further to return stronger identifies that 60% of cross border investment (US$60bn) took place last year region-to-region. According to Mr Patrick Smith, Jones Lang LaSalles Australian Head of Investments, this implies investors seeking international diversification are more likely to do so across continental boundaries than within their own region. Mr Smith says that there has been strong interest by Australian investment houses in overseas assets in the past year. Australian investors made up 7% of the global foreign purchases and 1% of global foreign sales, investing a net $4.1bn in assets outside of Australia (2004). The vast majority of these funds were invested in the United States, accounting for 2% of the total US office market and 3% of the US retail market respectively, he says. The research report show major Australian deals included Tishman Speyer Office Fund ($1.85Bn - office), Macquarie DDR ($0.621Bn retail), Macquarie Countrywide ($0.357bn retail) and ING Clarion Partners ($0.216Bn retail and office). There has also been a growing investment interest for industrial properties overseas, particularly by the manufacturing sector in China, says Mr Smith. Mr Smith says continued demand for property assets by investors and the tightly held stock within Australia has created increasing interest in overseas markets. On the other hand, Mr Smith says that foreign investment in Australia saw more sales of Australian assets by foreign investors than purchases, (82% increase compared to 40% increase respectively), giving a net flow balance of $1.38bn out of Australia. Investors from USA, Malaysia and Japan were the largest foreign investors in Australian assets in the past year, while USA, Japanese and Nauru were countries withdrawing the largest net funds out of Australia, he says. Other findings in Jones Lang LaSalles global Cross Border Flows report include:Approximately 5% of the global investible universe was traded in 2004.Cross-border investment totalled US$99 billion, with rapid growth in Asia-Pacific and North America.North American investors were the key source of capital in the global investment market, and Europe was the most active location for cross-border investment.The office sector accounted for 59% of global capital flows in 2004, due to its size, familiarity and improved performance prospectsSales activity by global investors marginally outweighed purchase activity, with investors actively managing international portfolios by trading on the buy- and sell-side. Trends for the future highlighted in the report include:Strong real estate performance over the short to medium term is expected to emerge as market cycles offer upside opportunities and investor demand continues to exert downward pressure on yields Capital allocations to global real estate are expected to grow as equity continues to flow from pension funds and low interest rates fuel the debt-driven sector, reinforcing yield compression and positive returns. Accordingly, demand from core and value-add investors will grow, with a focus on solid risk-adjusted returns in markets with high transparency and good liquidityGiven the current weight and expected new sources of capital, the fastest short-term growth in Inter-Regional investment will be in markets where there are significant improvements in transparency and a large stock of institutional quality investible real estate. Less mature markets generally require more significant improvements in transparency before rapid growth of global capital flows is seen, particularly from core and value-add investors.