$67 billion of private equity capital heading our way: CBRE

$67 billion of private equity capital heading our way: CBRE

9 February 2018

More than $67 billion of private equity capital managed by funds will be targeting Australian, Chinese, and Japanese property over the next three years, predicts commercial real estate and investment company, CBRE Group.

According to the CBRE analysis, about 70 per cent of the assets are expected to partner with local and investors to build commercial and residential development projects, says the AFR.

Australian and Japanese REITs are currently trading at average premiums of between 25 per cent and 30 per cent.

Private equity investors may also buy Australian companies to finance additional acquisitions. The expanded company would usually be divided into a property company that owns the real estate and an operating company running the business and leases.

Other popular investments include value adding projects, which might involve repositioning a commercial building by refurbishment or conversion, the CBRE analysis finds.

Property fund managers, for example, have been acquiring and converting hotels in China and Hong Kong into boutique offices.

Alternatively, they may convert basement and lower floors of a commercial building into retail facilities serving tenants and the surrounding community.

Fairfax Media reported last month that foreign investment in Australian commercial property is staging a comeback.

The latest quarterly survey from the Property Council of Australia reveals hotels are the most popular asset in almost every state.

Foreign demand for hotels and office assets are set to climb to 21.9 per cent and 19.2 per cent respectively.

Hotels, offices, retail and industrial property sales to foreigners are all expected to rise, with Victoria tipped to lead in all of those sectors except industrial, where NSW still reigns.

According to Michael Andrews, a CBRE director of capital markets, total investment in Melbourne and Sydney is expected to be lower than recent years. However, he predicts growing interest in secondary cities, such as Brisbane, and alternative asset classes, including student housing, and cold storage.

In a separate AFR report, however, new forecasts by BIS Oxford Economics expect the profitability of commercial property investments is set to decline sharply over the next five years as interest rates rise and values soften.

A wave of global capital seeking a home in income-yielding bricks and mortar has reduced yields to new lows and generated “extraordinary” double-digit returns over the past five years in the Sydney and Melbourne office markets and the Sydney industrial sector, said the research firm.