Investors Drawn To Australian Commercial Property in 2021

Investors Drawn To Australian Commercial Property in 2021

According to the JLL Australia and New Zealand investment market themes for 2021 report, Australian commercial real estate is expected to remain an attractive commodity for offshore investors as 50 per cent of global investors surveyed by commercial agency JLL plans to increase their exposure to transparent market enjoying strong economic growth and low volatility of returns.

JLL’s head of research for Australia, Andrew Ballantyne, believes that the COVID-19 pandemic has led to a sharper focus on environmental, social and corporate governance criteria and investment and that organisations will gravitate towards assets with strong sustainability attributes.

The Latin phrase “annus horribilis” best describes 2020. The pandemic shook up commercial real estate halving transaction volumes from a year earlier. The policy response to mitigate the downside risk of the economic crisis stemming from the pandemic was unprecedented in Australia and New Zealand. As a result, Australia and New Zealand are now well placed for a sustained economic recovery in 2021.

Investors were willing to pay high prices for modern, good-quality industrial and logistics assets with long covenants. One of such transactions was the Aldi portfolio of four distribution centres worth $648 million acquired by a Charter Hall CPIF-Allianz Real Estate joint venture.

The pandemic also birthed interests in real estate alternatives. Many investors were lured to alternative assets, like childcare, healthcare, and data centre property, which were less tied to the broader economy than mainstream commercial sectors such as traditional office space.

The reported stated that most real estate alternatives sub-sectors was highlighted by high rent collection rates throughout COVID-19. This expanded the pool of investors seeking exposure to those sub-sectors

According to the agency, some sub-sectors displayed counter-cyclical characteristics.

“The propensity to buy a residential dwelling reduces in an economic downturn and part of the population gravitates towards rental accommodation supporting the underlying demand for build-to-rent properties”

JLL explained that the lowly correlated nature of real estate alternative to economic condition makes them less correlated to the broader market than office and retail sectors. Non-bank lenders’ share of commercial real estate financing could expand to as much as 30 per cent of the market – or $111.3 billion – as the greater returns on offer than equities or corporate debt draw more lenders to an area from which domestic banks are retreating.

The announcements of vaccines for Covid also improved sentiment around assets such as office property. JLL’s head of capital markets for Australia, Fergal G Harris, says that Listed investor confidence in COVID-19-exposed sectors [office, retail and hotels] led to a strong rally in unit prices for those vehicles and a significant narrowing of the discount to the net tangible asset value.

“We expect this confidence to flow through to direct real estate investors. While the share market rally may reduce the motivation for some A-REITs to be motivated vendors, we believe that portfolio reweighting will remain a relevant theme for A-REITs and unlisted funds in 2021.”


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