Melbourne has pipped Sydney as the top Australian city for investment in the Asia Pacific region – coming second only to Tokyo as the preferred destination for commercial property investors.
Findings from CBRE’s 2018 Asia Pacific Investor Intentions Survey revealed the Victorian capital’s rank as preferred destination for cross-border capital improved from eight in 2017 to second in 2018, surpassing Sydney, whose rank fell from first to sixth.
Ranking in at number eight, Brisbane was the third Australian city to make the top ten – up from 10th spot in 2017.
CBRE Research Director, Australia, Bradley Speers said the results highlighted an increasing focus on investment diversification – encompassing both asset type and geographic position.
“With yields reaching the bottom of the compression cycle in many markets, including Sydney, investors are more focused on rental growth for achieving capital growth, and diversification as a means of reducing portfolio risk,” Mr Speers said.
“While some investment focus has shifted from Sydney to Melbourne, this is mainly Asian based, with Australian respondents surveyed still showing a preference for the New South Wales capital as a destination for capital,” Mr Speers said.
CBRE Senior Managing Director, Capital Markets, Mark Coster said while core assets remained a focus for most investors, there was growing interest in core plus and alternative asset classes.
“Investors are shifting their focus in some cases from to traditional asset classes to alternative assets such as healthcare and education due to the higher risk adjusted returns often available,” Mr Coster said.
“Melbourne in particular is becoming increasingly compelling from an investment point of view, offering more opportunity in terms of stock availability and capital growth prospects – combined with its security as a gateway city with international recognition.
“Investment interest in Melbourne is underpinned by its income growth story – with strong rental uplifts forecast across all sectors over the next two – three years. This is driving capital growth and combined with continued yield compression in most parts of the market.”
Mr Coster said growth in omnichannel retail was also propelling significant investment demand for industrial & logistics assets.
“Ongoing growth of online retail is repositioning the industrial & logistics sectors as one of the most in demand investment asset classes, with distribution centres now acting as a proxy for retail assets. Typically secured by long-term leases and strong covenants, their appeal is only going to increase further,” Mr Coster added.
The survey revealed Asian outbound real estate investment reached a record high in 2017, totaling US$83.4 billion, with 92% of respondents indicating their investment activity this year will be the same or greater than that of last year. In particular, real estate fund managers showed stronger intentions to purchase more this year, with approximately US$53 billion of real estate private equity capital forecast for deployment in Asia Pacific real estate by 2020.