Overseas buyers are increasing their investments in Australian retail and office assets via unlisted wholesale funds, driving firmer yields and competition for prime assets, agents say.
About $1.7 billion was spent by foreign investors on direct retail investments in the past two years, Savills research suggests.
Foreign investors purchased 20 per cent of retail property sold in the year to March, overshadowing the 17 per cent spent by local funds, Savills said.
Traditionally overseas buyers focused on large regional or CBD retail assets but in the past 12 months they had diversified and invested directly in bulky goods, neighbourhood and sub-regional centres, Savills' Victorian investment executive Pat De Maria said.
Unlisted wholesale funds had a $2 billion-plus war chest, he said.
The Canadian Pension Plan Investment Board and the Abu Dhabi Investment Authority were buying through AMP. Another Canadian, PSP Investments, has invested with Charter Hall.
Other offshore investors were key partners in the purchase of Centro's Hollywood Plaza, Armada Funds Management in Adelaide, and Centro Surfers Paradise with Challenger, he said.
A similar pattern is emerging in the office space. The amount of capital available and active in Australia at the moment was unprecedented, Colliers International's Nick Rathgeber said.
Overseas pension funds were allocating more to the Asia Pacific region but the availability of suitable property had not grown to the same degree, he said.
Colliers estimates there is more than $20 billion capacity for core office investment, with more than half from offshore.
Surprisingly, local funds had out-muscled offshore investors recently in six of the largest $100 million-plus office transactions in Melbourne, he said. But the investment demand and supply scenario was eventually likely to favour offshore investors and lead to a structural shift in cap rates, he said.