The commercial property market in Australia presently offers worldwide investors with a medium-term possibility of relative stability and more attractive investment profits.
Jones Lang LaSalle (JLL) has recently undertaken several investor briefings throughout Asian markets, as well as Singapore. It was evident from the briefings the significance of Asian interest in the property market of Australia, because of its comparatively stable fundamentals. This has given an opportunity for Australian investment – with commentators suggestive of the finest conditions for foreign investment seen ten years ago.
The fundamentals of commercial property markets in Australia have moderately deteriorated due to the economic downturn. Institutional property investors in Australia have not been resistant from the consequences of softening property prices, increasing debt levels and affected credit markets.
The A-Reit (Australia-based real property investment trust) index has suffered a loss of almost A$120 billion or S$125.1 billion in value for the past fifteen months.
The S&P/ASX 200 benchmark of A-Reit Index is about 690 points, down to 73% from 2,575.6 points last February 2007.
A-Reits consider debt refinancing of about A$60 billion .for the next 3 years. Almost A$26 billion has been borrowed by several foreign banks, some have inclined to send back these funds during this uneasy period. Given the impending debt expiration profile for the next three years, realistic vendors are willing to provide quality properties for disposal in an effort to lessen funding pressure.
In addition, the pool of funds made an investment in superannuation that will forcibly persist in the domestic estate markets. The pool accounts for A$1.1 trillion are currently estimated to grow more than A$3 trillion by year 2016. With 10% average of this pool, or A$23 billion every year, allocated to real property, a substantial capital amount is intended to look for a home in estate markets in the near future.
Australian market attracts foreign investors because of high level of real property transparency, low interest rates, lesser hedging charges and comparatively stable profits. Historically, Australia has been an eye-catching market for foreign investors searching to diminish unpredictability in their portfolio.
Currently, property markets are competing on a worldwide scale with a better investigation of a country’s fundamentals on economics, asset cycle position, willingness of vendors to deal and other estate market particulars. It is believed that the Australian market is poised to come across such criteria.
Pressures on vacancy are obviously increasing. Nevertheless, the rate of headline vacancy remains under the long-term average of 8% to 9%. The supply pipeline in the future is moderate, greatly different from the 1990s’ down cycle. For the next three years, there is currently 1.31 million sq. metres under the CBD office supply pipeline construction, which compares positively to the completed 2.52 million square metres in the 3 years leading up to 1992.
The headwinds striking the worldwide economy continued in previous weeks and it is expected that 2009 will be a difficult year. There are several factors to consider in this fiscal environment and investors and owners need to continuously keep an eye on their portfolios to make sure they are in the right place to benefit from the market fundamentals.