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Diversification drives record $5.4bn quarterly CRE investment

Finance Markets / Latest Activity

Australia

Apr 07 2017

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Sydney, 07 April 2017 – The Australian commercial real estate investment market has started the year on a buoyant note, with a record first quarter transaction volume. Cushman & Wakefield today released its Investment MarketBeat report, which revealed that $5.4bn was invested in Q1 2017, outpacing the previous first quarter record in Q1 2011 of $5.2bn.

The record volume came from 164 separate transactions (up from 113 in Q1 2016), with an average deal size of $33m, down 20% from the average in Q1 2016 of $41m. The main driver of this was a lack of deals over $500m in size, with a large number of deals transacting in the $20-$50m range. In addition, the number of non-CBD deals increased from 67% in Q1 2016 to 83% in Q1 2017.

James Quigley, Head of Capital Markets Australia and New Zealand, Cushman & Wakefield, commented: “Demand remains very strong for assets with this record start to the year building on very strong volumes in the previous quarter.

“Diversification is continuing given tightly held core stock and investors continue to look further afield for opportunities. We saw 83% of the investment volume for the quarter coming from non-CBD assets as investors continue to seek a greater range of opportunities to deploy capital. This underpinned the record quarterly volume and lower deal size.”

In further signs of diversification, Queensland was the number one investment destination for the quarter, attracting over $1.6bn of investment, with almost half into office assets. This is the first time that Queensland has led other states in quarterly investment since Q2 2013. Surprisingly, New South Wales finished in third position behind Victoria at $1.4bn and $1.5bn respectively.

James Quigley added: “Brisbane’s office market is now past the bottom of the tenant demand cycle and investors are increasing their focus for assets in this market. Investors are benefiting from a favourable yield spread compared to southern markets, steady tenant demand and a range of recently initiated high profile infrastructure projects.

In a continuation of 2016 trend, A-REITs provided much of the liquidity over the quarter with net divestment of over $300m. Similarly unlisted funds, many with capital sourced from offshore, remained the largest net purchasers at almost $260 in net purchasing activity. Overall foreign investment for the quarter was $2.6bn (48%).

James Quigley remarked “With yields continuing to compress, we are seeing REITS divest non-core stock to recycle capital into refurbishments and new development opportunities where they can secure higher returns. The highly cashed-up unlisted sector is taking advantage of this and bidding competitively to deploy capital raised over the past couple of years.”

Recent analysis by Cushman & Wakefield Research suggests a modified “lower-for-longer” outlook where interest rates move higher, but at a relatively moderate pace. If this does eventuate, it suggests CRE yields have the potential for further compression but the market will become more vulnerable to weaker fundamentals.

 

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries help investors optimise the value of their real estate by combining global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management, project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com.au or follow @CushWakeaust on Twitter.

SOURCE: Press Release

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