Australia looking good to investors, says CBRE
Global investors were focused on three key markets in the region: China, Japan and Australia, the company's Asia Pacific research director Nick Axford, said.
The three were attractive because China's growth was a "long-term play," Japan's economy was getting back on its feet and Australia's yields were out-performing others, Mr Axford told BusinessDay before CBRE's series of annual Market Outlook briefings.
In the past five years international funds, in particular those from Europe and North America, divested assets throughout the region after the 2008 financial crisis. "That pattern has just started to reverse over the past six months and we have seen for the first time positive net investment into Asia Pacific by international funds," he said. Nearly all of that money was heading to Australia, "out-weighing all the divestment that is going on around the region. "We think it's going to accelerate a bit. In a global context there are few places around the world that have the economic record of Australia".
But, while the outlook was more positive globally, CBRE was yet to see a shift towards occupiers and the business community becoming more aggressive in searching for expansion opportunities.
Mr Axford said it would not be long before investors started looking for better returns.
"We think that international companies are going to be saying, 'How can I now start growing my business again?' That's going to be very difficult to do on any scale in Europe, it's going to be tough to do on any scale in North America, so Asia is the obvious place where many are going to start reinvigorating and re-investing in their business."
Financial service companies will remain on the back foot for a while, but retailers were becoming more aggressive in Asia and the Pacific and insurance and consumer finance businesses were expanding.
In Australia, yields were typically above 6 per cent for the best office space compared with under 5 per cent elsewhere in the region, he said. Australia's key challenges were expensive debt and the high exchange rate.
Nevertheless, this year "we will see a pretty steady flow of interest from international investors at a time when domestic investors seem to be starting to ramp up their activities again," Mr Axford said.
Frequently Asked Questions about this Article…
CBRE says global investors are concentrating on three key Asia‑Pacific markets: China, Japan and Australia. China is seen as a long‑term growth play, Japan's economy is recovering, and Australia is attracting attention because its yields are outperforming other markets in the region.
According to CBRE's Asia Pacific research director Nick Axford, a recent reversal in post‑2008 divestment has produced positive net investment into the region, and nearly all of that money has been flowing to Australia. Investors are drawn by relatively strong yields and Australia's solid economic record compared with many other global locations.
The article notes that after the 2008 financial crisis international funds—especially from Europe and North America—divested assets across the region. Over the past six months that pattern began to reverse, producing the first positive net investment into Asia‑Pacific by international funds, with much of that capital heading to Australia.
CBRE observed that retailers are becoming more aggressive across Asia and the Pacific, while insurance and consumer finance businesses are also expanding. By contrast, traditional financial service companies remain on the back foot for a while, and the broader occupier/business community had not yet become markedly aggressive about expansion.
The article highlights two key challenges for Australia: relatively expensive debt and a high exchange rate. These factors can affect returns and the cost of financing investments, even as yields look attractive.
CBRE reports that yields for the best office space in Australia are typically above 6%, compared with under 5% for top office assets elsewhere in the Asia‑Pacific region—one reason international capital has been favouring Australia.
CBRE expects the flow of international interest to continue and possibly accelerate a bit. The firm also notes domestic investors appear to be starting to ramp up activity again, and that investors will soon be looking for better returns which could further drive reinvestment into Asia‑Pacific markets.
Based on CBRE's commentary, everyday investors should note that Australia is currently a major destination for international capital due to higher yields and a strong economic record, but they should also be aware of challenges like costly debt and a strong currency. Sector dynamics matter too—retail, insurance and consumer finance are expanding while some financial services remain cautious—so assessing sector exposure and macro risks is important when considering opportunities in the region.
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