FIRST HALF 2012 | NATIONAL
RESEARCH & FORECAST REPORT
GLOBAL CAPITAL INVESTMENT IN AUSTRALIA
Asian Capital Dominates Acquisitions Foreign investors have continued to direct capital into Australian property markets over the second half of 2011, purchasing 58 assets valued at $2.8 billion, during the six month period. A combination of property portfolio sales, direct property transactions and company, fund and REIT takeovers and mergers during 2011, led to a total of 150 properties with a value of circa $7.7 billion changing hands over the course of the year, up from $5.1 billion during 2010.
Suncorp Place, 259 George Street, Sydney Largest purchase of office asset in last 6 months. Memocorp purchased this asset in July 2011 for $395 million.
MARKET INDICATORS FORECAST - 6 MONTHS OVERALL PERFORMANCE OFFICE INDUSTRIAL
An unemployment rate of 5.2%, annual GDP growth of 2.5% and higher yields for Prime grade assets, compared to other global markets, made the Australian property market an attractive place for investment in 2011. In addition to this, economic, political and transactional transparency continue to drive foreign capital to Australian property markets. Over the course of the year, foreign buyers made up 42% of commercial transactions within Australia. Asian investors continue to dominate offshore capital inflows into the Australian market, making up 34% of all foreign property asset purchases in the second half of 2011. Evidence of the determination from offshore buyers to secure the right asset can be seen in the off market transactions which have been secured at below market average yields. Examples of this are; Memocorp’s off market acquisition of 259 George Street in Sydney at a yield of 6.3% which is considered to be 25 to 50 basis points below the total market A grade average and Aviva’s 50% purchase of Hoxton Distribution Park at 7.5%, being 25 basis points below the market average.
RETAIL HOTELS
CAPITAL FLOWS INTO AUSTRALIAN PROPERTY SECTORS – SECOND HALF 2011 $AUS/$US
KEY HIGHLIGHTS • Foreign buyers made up 42% of all commercial property transactions in 2011. • Asian buyers comprised 34% of all offshore capital inflows into Australian property markets in 2011. • There was circa $8.1 billion worth of foreign investment in Australian property in 2011 up 60% from $5.1 billion in 2010.
Value of Sales
Average Yield
Average Sales Rate
Largest Capital Flow Origin
Largest Capital Flow Destination
$1,937,400,000
8.10%
$6,291
United States
Sydney
$380,000,000
8.30%
$2,097
United Kingdom
Sydney
6
$234,600,000
8.10%
$5,697
United States
Sydney
4
$145,500,000
N/A
$117,439
United States
Gold Coast
$2,858,100,000
8.40%
$4,407
United States
Sydney
Number of Sales OFFICE 25
INDUSTRIAL 12
RETAIL
HOTEL
TOTAL MARKET 58
Source: RCA/Colliers International Research
www.colliers.com.au/research
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
Investment Trends Private equity firms have increased their exposure in Austrlia and are typically seeking an IRR on equity invested of 20% or more.
WHO’S INVESTING The 2011 calendar year saw a broad range of foreign investors entering into Australian property markets both directly through the acquisition of individual assets or portfolios or indirectly via investments in non-performing loan portfolios, the take private of listed AREIT’s, Joint Ventures and Mezzanine Loans . In the case of Joint Ventures and Mezzanine Loans many of the groups investing in these sectors have taken advantage of the tougher credit conditions imposed by the GFC and a greater need for equity and debt from most major local property groups. Investors have included private high net worth individuals, pension funds, sovereign wealth funds and major private equity groups. Examples of some of the larger private equity groups and Investment Banks to that invested in Australia during 2011 include Morgan Stanley Real Estate Investing, LaSalle Investment Management and JP Morgan. Blackstone
RETURN PROFILE Core investors who are yield driven and take long term positions are primarily from the Europe and the US and include some of the world’s largest pension funds. These investors are targeting secure Prime grade assets with long secure leases in place. Asian investors have mainly been directing their investment positions to targeting those assets in which they can add some value to take advantage of a short to medium term capital gain. Private equity firms are opportunistic investors who are typically seeking an IRR on equity invested of 20% or more. Another trend over the course of the year was not only the strong appetite for foreign investors for direct assets but also the increasing demand for indirect investments in property companies, non-performing loans and mezzanine lending. Some examples of these indirect investments include: •
US Private equity firm Blackstone took the publicly listed Valad Property Group private through cash consideration of A$1.80 per stapled security. The deal valued the company’s shares at approximately $208m with Blackstone also taking on $598m worth of liabilities, the overall offer was valued at $806m. With a much stronger balance sheet Valad is firmly back on a growth trajectory.
•
The last week of 2011 saw Orchard Funds Limited sell its funds management business to a Global private equity real estate fund managed by Morgan Stanley Real Estate Investing. In addition to acquiring the responsible entity of Orchard, Morgan Stanley Real Estate Investing has recapitalised three of Orchard’s property funds being; the Orchard Diversified Property Fund, Orchard Commercial Office Fund and Chevron Renaissance Property Trust, through capital injections and rights issues of $A200 million.
•
Also in December the same Morgan Stanley Real Estate Investing Fund acquired a portfolio of non-performing loans with a face value of $700 million from Lloyds Bank Australian subsidiary – the Bank of Scotland International. The loans are primarily secured by various completed development projects and development sites on the Gold Coast.
•
December 2011 saw Government of Singapore Investment Corporation (SGIC) affiliate, Reco Ambrosia Pte, and the Public Sector Pension Investment Board of Canada sign a binding agreement to pay $1.2 billion for 85% of the Charter Hall Office REIT (CQO). The agreement was signed on the condition the REIT completes the sale of its U.S. properties by March 2012 with a vote by shareholders expected on March 15. Under the agreement Charter Hall will join the consortium with an initial investment of 15% and will continue to manage CQO on an unlisted basis.
•
In the first half of 2011 LaSalle Investment Management was an active investor on behalf OF its Asia Opportunity Fund No. 3. Investments included the acquisition of Novotel Melbourne on Collins Street and the Australia on Collins retail complex for $204 and equity investmements in residential development Joint Ventures in Sydney with Toga Group, Leighton Properties and Australand.
COLLIERS INTERNATIONAL |
P. 2
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
Economic Update (data to be updated in Jan 2012)
OVERVIEW Sovereign debt issues in Europe and a slow recovery in the United States, as well as inflation and slowing growth concrens in China have caused uncertainty in relation to the strength of the global economic recovery. Negative sentiment has flowed through to the domestic economy with a dampening effect on sectors outside mining and resources. Despite this, the fundamentals of the Australian economy remain sound. A key indicator of the strength is the Australian labour market with unemployment currently at 5.2%, compared with 8.3% in the UK and 8.5% in the US.
FOREIGN EXCHANGE/CURRENCY Ongoing global economic uncertainty saw the Australian Dollar reach a record high in late July 2011, trading at $US110.62 cents. The Australian dollar has been volatile over the past few months and is currently trading at around $US105 cents, after slipping below parity to $US97 cents in the last week of November 2011.
INTEREST RATES The Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold at 4.25%, at its monthly board meeting in February 2011. The reasons behind the RBA’s decision were recent signs of underlying strength in some major economies, including the United States and China, also the Australian economy appeared to be growing at close to trend. The board stated that inflation has declined, as the large rises in food prices resulting from the floods a year ago have been unwinding and is expected to fall further during the first half of 2012. In its monetary policy statement, the RBA noted that “interest rates for borrowers have declined to be close to their medium-term average, as a result of the actions at the Board’s previous two meetings” and looking forward “should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy”.
DEBT The risk and uncertainty associated with sovereign debt and economic growth issues across a number Europe and the US has led to a flight to quality from investors since the start of the global financial crisis in 2008. This saw the spread between AAA and BBB debt yields peak in December 2009 at nearly 2.00% and has remained around 125 basis points since, this is in stark comparison to a 25 basis point difference between 2003 and 2007. This yield spread has begun to slowly rise over Q3 and Q4 2011 and finished the year 1.6%. The flight to quality to AAA investments has also seen a return of positive spreads between average Prime grade office and AAA debt and sits at 3.6% as of December 2011.
AUSTRALIAN DOLLAR EXCHANGE RATES
PRIME GRADE OFFICE YIELD VS. AAA DEBT RATE
9.0%
$1.50
SGD
$1.30
7.0%
$1.20
Borrowing Rate and Yield
$1.10 $1.00 $0.90
USD
$0.80 $0.70 $0.60
5.0%
3.0%
1.0%
-1.0%
Euro
$0.50
-3.0%
USD
Source: RBA / Colliers International
Jun-11
Dec-11
Jun-10
Dec-10
Jun-09
Dec-09
Jun-08
Dec-08
Jun-07
Dec-07
Jun-06
Dec-06
Jun-05
Dec-05
Jun-04 Euro
Dec-04
Jun-03
Dec-03
Jun-02 SGD
Dec-02
Jun-01
Dec-01
Dec-00
$0.40
Jan-02 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Foreign Currency per Australian Dollar
$1.40
Spread
AAA Debt
National Average Prime Grade Office Yield
Source: RBA / Colliers International
COLLIERS INTERNATIONAL |
P. 3
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
By Property Sector OFFICE MARKET DOMINATES •
The office market continued to be the favoured property sector for foreign buyers during the second half of 2011, making up 71.8% of all offshore acquisitions within Australia.
•
A total of 25 office properties were purchased by foreign capital with a value of $1.9 billion, during the six month period.
•
Declining vacancy rates, stable tenant demand combined with rental growth in some Prime grade office markets have been the main driver behind these acquisitions.
•
•
Prime grade yields, of between 6.25% and 7.25%, compared with 5.00% to 6.00% in London and New York office markets, have increased competition for quality assets in Australia’s office market. The largest office asset to sell to a foreign buyer in the second half of 2011 was ‘Suncorp Place’ 259 George Street, Sydney. This property sold to Memocorp Australia for $395 million in July 2011, on a tight reversionary yield of 6.3%. It is understood that the capital for the acquisition is underpinned through the Singaporean owner of the Australian business.
•
•
Acquisitions by foreign buyers of industrial assets continued to remain strong during the second half of 2011 with 12 industrial assets valued at circa $380 million transacting during the six month period. The main driver behind these acquisitions was the attraction of high yielding, quality assets with a lack of new supply providing future growth prospects for Prime grade markets.
The largest deal to take place in 2011 was the purchase by Aviva Investors of the Hoxton Distribution Park from Mirvac. Aviva paid $97.4 million for a 50% stake in the property representing a yield of 7.5%.
RETAIL ATTRACTS INVESTORS •
Foreign capital flows into the retail sector made up 12% of all offshore acquisitions during the second half of 2011 with six assets valued at circa $865 million transacting.
•
Globally competitive yields, low volatility of returns and lower vacancy rates then comparable global centres are currently attracting capital to the Australian retail market.
•
The largest foreign retail property purchase in 2011 was the 50% stake in the Northland Shopping Centre by CPP Investment Board valued at $455 million. This super regional centre was an attractive buy due to its large catchment area, diverse tenant profile and high foot traffic this is reflected in the tight 6.23% yield attributed to this sale.
CBD HOTELS TARGETED •
Hotels in Australia have slowly begun to attract further foreign investment making up 8.5% of offshore property purchases with four assets selling in the second half of 2011.
•
CBD, business driven hotel assets have been the major targets for buyers, as the leisure and resort sector assets continue to present risks due to the slowdown of overseas tourists.
•
The Novotel Melbourne on Collins was the largest sale in 2011, purchased by LaSalle Investment Management for $140 million in June 2011.
HIGH RETURNS DRIVE INDUSTRIAL
VALUE OF CAPITAL FLOWS INTO AUSTRALIA BY SECTOR $8,000 $7,000
Retail Office
$6,000
$ Millions
Hoxton Distribution Park, Hoxton Park Mirvac sold a 50% interest in this asset to Aviva Investors in September 2011. The sale price was $97.4 million and represented a yield of 7.5%.
•
Hotel Industrial
$5,000 $4,000 $3,000 $2,000 $1,000 $0
2008
2009
2010
2011
COLLIERS INTERNATIONAL |
P. 4
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
By Country of Origin ASIA CONTINUES TO DRIVE FLOWS •
•
•
•
1 Alfred Street, Sydney This building was part of the Valad Property Group portfolio which was acquired by Blackstone. The property is currently an A grade office building however, a DA is currently being assessed for the development of a high end luxury residential apartment building.
Capital inflows from Asia accounted for 34% of total foreign investment in Australian property during the second half of 2011. The comparative strength of the Australian economy combined with the ongoing economic uncertainty in Europe and the US has seen Asian investor re-direct funds that would normally be bound for these markets. Buyers from Singapore have been driving capital flows from Asia, making up 19% of total foreign capital investment in Australia over the second half of 2011. Tightly held property markets in Asia, such as Hong Kong, currently provide investors yields of between 4.00% and 6.00% which further enhances the yield profile of property sectors in Australia.
EUROPEAN INVESTORS REMAIN SUBDUED •
The sovereign debt crisis which has engulfed the European economy over the past 24 months has limited investment and capital flows from European institutions.
•
Despite this, Australia saw circa $413 million of foreign capital being poured into direct property from Europe in the second half of 2011.
•
This accounted for 15% of all foreign capital flows into the Australian property market during the period.
•
Most of the purchases have been long term, yield driven acquisitions with European buyers looking for assets with long, secure leases with strong convents.
MIDDLE EAST & AFRICAN CAPITAL BEGINS TO EMERGE
NORTH AMERICA •
North American investors have found preference in directing capital to Australia’s office and retail sectors.
•
Capital from this region made up 34% of foreign investment during the second half of 2011 with circa $972 million being invested during the period.
•
The majority of this investment occurred via the purchase of Valad Property Group by Blackstone this accounted for 27 properties worth circa $570 million.
•
Slow growth and ongoing uncertainty in the US economic recovery has led to North American institutions moving capital offshore to seek higher, less volatile returns and growth prospects.
•
Middle Eastern and African investors were limited to one buyer in 2011 comprising 17% of total global capital flows into Australia.
•
This buyer was Growthpoint Properties from South Africa who purchased eight assets during the second half of 2011, valued at circa $473.
CAPITAL FLOWS INTO AUSTRALIA BY COUNTRY OF ORIGIN
Hong Kong 1% Germany 6%
China 1% Sweden 1%
United States United States 34%
UK 8%
Singapore South Africa Malaysia
Malaysia 13%
UK Germany Hong Kong
South Africa 17%
China Singapore 19%
Sweden
Source: RCA/Colliers International Research
COLLIERS INTERNATIONAL |
P. 5
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
By Capital Destination SYDNEY SEE MAJOR INCREASE IN OFFICE INVESTMENT
Southern Cross West Tower, 111-129 Bourke Street, Melbourne A 50% interest in this 22 storey A grade office building was bought by Brookfield Prime Property Fund for $120 million in July 2011.
•
The Sydney market accounted for 55% of all foreign capital flows during the second half of 2011, valued at circa $1.5 billion.
•
Office and industrial assets were the main focus of foreign capital flows in the Sydney market over the second half of 2011.
•
Nine office assets valued at $1 billion and five industrial properties worth $299 million were purchased by offshore buyers in Sydney over the past six months.
•
A lack of Prime grade industrial and office stock in Sydney has led to rental growth for quality assets over the past six months, leading to increased capital flows into these sectors from risk adverse investors.
BRISBANE INDUSTRIAL MARKET •
Total offshore capital flows into the Brisbane market increased by 6.5% from $425 million in the first half 2011 to $455 million in the second half of 2011.
•
One of the largest transactions was the purchase of two office assets by Growthpoint Properties from Australian Property Growth Fund. The first property was 333 Ann Street which was bought for $111 million while the second was CB1 & CB2 which were sold for $99.3 million.
PERTH AND ADELAIDE OFFICE SALES •
Office assets were the main focal point for foreign buyers in both the Perth and Adelaide over the course of 2011.
•
The resources and mining ‘boom’ has seen vacancy rates decline in the Perth market, driving rental growth and in turn interest from investors.
•
The sale of ‘Bankwest Tower’ at 108 St Georges Terrace, in the first half of 2011, for $260 million to Brookfield Office Properties was the second largest foreign direct property investment transaction in Australia during 2011.
•
Adelaide saw a total of $37.2 million in foreign capital flows during the second half of 2011 across two transactions.
•
The largest being the sale of 7 Laffer Drive, Bedford Park for $24.5 million to Growthpoint Properties.
MELBOURNE ATTRACTS RETAIL FLOWS •
Melbourne attracted 20% of all offshore capital flows into Australia during the second half of 2011.
•
The six month period saw more than $575 million worth of property across 16 transactions taking place in Melbourne during the period.
•
The majority of sales were office assets worth $434 million across seven transactions.
•
The stability and growth prospects of Melbourne’s office and retail markets combined with declining vacancy rates and forecast rental growth have all been drivers behind the push from overseas buyers into the market.
DESTINATION OF FOREIGN CAPITAL FLOWS INTO AUSTRALIA
Adelaide Other Gold Coast 1% 5% 3% Sydney 55% Brisbane 16%
Sydney Melbour Brisbane Gold Coa Adelaide
Melbourne 20%
Other
Source: RCA/Colliers International Research
COLLIERS INTERNATIONAL |
P. 6
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
By Buyer Type PENSION FUNDS INCREASE INVESTMENT
INVESTMENT MANAGERS •
LaSalle and Heitman were two of the most active offshore Investment Managers in the Australian market over the past 12 months acquiring circa $375 million worth of property for their respective funds and investors.
The includes the likes of the Canada Pension Plan Investment Board (CPP) and Public Sector Pension Investment Board of Canada.
•
Foreign investment managers made up 11% of capital inflows into Australian property in 2011, an increase of 8% on 2010.
The basis for these for investment by pension funds are yield driven, low risk, Prime grade assets with secure, long term tenants providing return certainty for their investment.
•
The basis for investment from these buyers vary depending on their purchase mandate and the return criteria of the individual funds they manage. For example currently European managers such as RREEF are driven by long term, secure, yield driven investments for their open ended funds.
•
The second half of 2011 also saw the private equity fund Blackstone acquire Valad property group. The acquisition consisted of more than 27 properties valued at circa $570 million.
•
2011 saw an increase in offshore pension funds investing in Australian property markets, accounting for a number direct and indirect property acquisitions during this period.
•
•
REOC’S CONTINUE TO INVEST •
Offshore Real Estate Operating Companies (REOC) have increased their investments over the past 12 months making up 20% of foreign capital inflows into the Australian property market.
•
The most active being Brookfield Asset Management who has invested approximately $530 million over the past 12 months.
333 Ann Street, Brisbane This A grade building was purchased by Growthpoint Properties, from South Africa, in December 2011 for $109 million on an equivalent reversionary yield of 8.44%.
•
•
DEVELOPERS AND OWNER OPERATORS
Growthpoint Properties has also been active in the purchase of industrial portfolios and assets within Australia over the past year. These companies are driven by value add and capital growth investment opportunities, seeking to buy opportunistically to capitalise on short to medium term capital returns.
•
Foreign capital has also entered Australia via developer and owner operators during the past 12 months making up 6% of capital, worth circa $295 million.
•
The majority of this capital has been directed to the hotel and residential development sectors with such owner/developers as HNA Group and Kirsh Group.
CAPITAL FLOWS INTO AUSTRALIA BY CAPITAL TYPE
Equity Fund Private Investor 5% 1% Pension Fund Bank/Finance 6% 23% Develop/Owner/ Operator 6% Sovereign Wealth Fund 7%
Pension Fun REOC Investment Manager REIT
Corporate/ Insurance 10% REOC 20% REIT 11%
Corporate/ Insurance
Investment Manager 11%
Source: RCA/Colliers International Research
COLLIERS INTERNATIONAL |
P. 7
RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL
Recent Market Transaction Activity
512 offices in 61 countries on 6 continents
INVESTMENT SALES Address
Suburb
State
Sale Date*
Sale Price ($AUS)
Yield**
Capital Value ($/m2)
Purchaser United States: 135 Canada: 36 Latin America: 18 Asia Pacific: 194 EMEA: 117
Office Suncorp Place 8-12 Chifley Sq
Sydney
NSW
Aug-11
$395,000,000
6.40%
$16,253
Memocorp Australia
Sydney
NSW
Jul-11
$308,800,000
6.65%
$6,606
K-Reit Asia
Southern Cross West
Melbourne
VIC
Jul-11
$240,000,000
7.17%
$5,195
Tower Coca-Cola Place
Sydney
NSW
Jul-11
$228,000,000
7.25%
$8,070
Properties
Aurecon HQ
978.6 billion square feet under management
•
Over 12,500 professionals
Pramerica Real Estate International
COLLIERS INTERNATIONAL Sydney
$7,347
RREEF
NSW
Dec-11
$185,000,000
7.25%
VIC
Oct-11
$120,000,000
7.00%
CIMB Group
NSW
Sep-11
$194,800,000
7.50%
Aviva
Centre future
$1.5 billion in annual revenue
•
Brookfield Office
Stock Exchange
•
Melbourne
Industrial
Level 12, Grosvenor Place 225 George Street Sydney, NSW, 2000 TEL 02 9257 0222 FAX 02 9347 0710
Hoxton Distribution
Sydney
RESEARCHER
Park iseek Data Centre
Brisbane
QLD
Jul-11
$62,857,143
Sydney
NSW
Dec-11
$60,000,000
VIC
Jul-11
$11,843,000
Securus Data Property Fund Securus Data
219-247 Pacific
Property
7.50%
Fund JV Keppel T&T
Highway 3 Summit Rd
Melbourne
Fujitsu
Retail 651 Old Coast Rd
Falcon
Kao Group
WA
Jul-11
$15,200,000
QLD
Jul-11
$8,500,000
$43,814
VIC
Sep-11
$31,000,000
$173,184
Hotel 316 Port
Port
Douglas Rd
Douglas
270 Flinders Ln
Mathew Tiller Manager | Research TEL 02 9257 0348 FAX 02 9347 0848
Melbourne
Wyndham International Michael Kum
Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. © Colliers International 2011.
* Sale Date is exchange date **Yields quoted are equivalent reversionary yields Source: Colliers International Research
Outlook Colliers International expects that disposal activity of non-performing loans from both foreign and domestic banks will increase over the course of 2012 as credit and debt markets remain tight.
Accelerating success.
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