Tokyo and Melbourne top Asia-Pacific for investment: CBRE

Tokyo and Melbourne top Asia-Pacific for investment: CBRE

20 April 2018

Strong rental growth and a tightening vacancy rate has pushed Melbourne past Sydney as the top Australian city for investment in the Asia Pacific region, says CBRE’s 2018 Asia Pacific Investor Intentions Survey.

Melbourne came only second to Tokyo as the preferred destination for commercial property investors in our region.

The Victorian capital’s rank as preferred destination for cross-border capital improved from eight in 2017 to second in 2018, in contrast to Sydney’s, which fell from first to sixth.

Brisbane was ranked eighth, up from tenth spot in 2017.

CBRE research director Bradley Speers said investors are more focused on rental growth for achieving capital growth as yields reach the bottom of the compression cycle in many markets.

“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 of capital markets Mark Coster said investors were shifting their focus from traditional asset classes to alternative assets such as healthcare and education due to the higher risk adjusted returns often available.

“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,” he said.

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 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.

“In comparison with other asset classes, real estate has provided more stable returns over the past decade while also being less volatile, which is strengthening investor appetite,” said CBRE Executive Chairman Rob Blain.

Asian Pacific investors are reportedly less concerned about global and regional economic shocks and more concerned about property prices. The availability of stock is less of a concern in this year’s result, with more investors indicating that they are willing to sell.

CBRE Head of Research, Henry Chin, said many investors hold the view that flexible space is the future of the office work environment.”

“Flexibility in the workplace is here to stay and one of the best strategies to improve the attraction of a building,” Mr Chin said.

“Our results indicate that half of investors surveyed believe that having up to 20 per cent of a building contain co-working space will enhance a building’s value.

“Given that we are virtually at the end of the yield compression cycle, and that investors see co-working as a means to add value, we expect the number of co-working options will increase over the next few years,” Dr Chin said.