Institutional investment interest remains strong in Australia
The research, Retail Quarter Time report for the year to March 2018, showed Australian funds and trusts have added $5.28 billion worth of retail assets (greater than $5 million) to their portfolios, more than double the total value for the previous 12 months.
The report also highlights that during the same period, capital flows from foreign investors into retail property started to moderate in contrast to 2015 and 2016.
Katy Dean, associate director for Research and Consultancy, said the dip in foreign investment inflows into the sector for the first time in three years had not yet impacted overall volumes.
“Total investment inflows for retail assets greater than $5 million reached $9.1 billion in the 12 months to March 2018, 21 percent higher than March 2017 year-end volumes and a 10-year record high,” she said.
“Investment appetite was the strongest in the last quarter of 2017, led predominantly by institutional investors trading large-scale assets on the eastern seaboard.”
Dean said that throughout the past 10 years, institutional investment had averaged about 40 percent annually.
“In the 12 months to March 2018, total acquisitions for more than $5 million by funds and trusts accounted for 58 percent of total investment volumes at $5.28 billion, which compares to a share of 26 percent for the same time last year,” she said.
“In contrast, acquisitions by foreign investors accounted for 19 percent of national investment volumes, a total of $1.71 billion in the markets surveyed in the year to March 2018.
“While this is down from a 25 percent share in March 2017 ($2.27 billion), it is close to the 10-year average, suggesting that this cycle of investment is beginning to shift at the same time that institutional capital is competitively pursuing strategies to deploy capital into core real estate through direct acquisitions or development.”
The report pinpoints an investment surge in the final quarter of 2017, led by asset sales in the $200 million-plus range in New South Wales and Queensland, was largely responsible for the record-breaking 12-month figures.
“While both states recorded significant rises in investment volumes on a year-on-year basis, the value of regional centre transactions reached $2.5 billion, more than threefold the value reported in the previous 12 months,” Dean said.
The large format retail sector was also a major stand-out nationally, with sale volumes for more than $5 million coming in at $1.504 billion.
“This is almost double the same time last year, and the highest level of the past decade, as were neighbourhood centre sales at $1.960 billion, up from $1.465 billion in the year to March 2017,” Dean said.
The report also showed that all major Australian markets surveyed except Victoria, which is coming off four years of elevated capital inflow, recorded a rise in total investment flows through the reporting period.
“While Queensland has had a fairly consistent run throughout the past four years, with annual volumes in the years to March sitting above $2 billion on average, New South Wales broke through a new barrier, with $4.325 billion in transactions for more than $5 million recorded in the 12 months to March 2018, to reach its highest annual total of the past decade,” Dean said.
“At 48 percent, investment volumes in New South Wales accounted for almost half of the national volumes recorded for the 12-month period, rising 93 per cent from $2.245 billion in March 2017 to $4.325 billion in March 2018.”
Queensland, on the other hand, accounted for 27 percent of total investment volumes at $2.458 billion, a 9.5 per cent rise on the volumes recorded in the year to March 2017.
“Victoria accounted for 15 percent of national volumes at $1.337 billion – however, following a surge in 2015 and 2016, volumes were lower for the year ending March 2018,” Dean said.
“Western Australia and South Australia accounted for about 10 per cent of the total, and while WA volumes increased 6.0 percent to $625 million, up from $589 million, investment volumes in SA rose 32 percent in the year to March 2018 to reach $224 million, up from $170 million in March 2017.”
Steven Lerche, Savills Australia’s national director for Retail Investments, confirmed the report’s findings, saying that institutional investment interest remained strong across the country in 2018, although investors appeared to be “sitting on the sidelines” and private investors remained selective in their purchasing.
“Capital is still seeking well-located metropolitan retail investment stock with solid fundamentals,” he said. “That said, the start of 2018 has seen formal listings across all retail categories drop well below average, and this trend is likely to roll into Q2. Limited transactions have been reported to date but this will change over the coming months.”
He said yields to date also seem to have remained generally flat, as we seem to be approaching the cyclical low for most sectors – but there will still be sectors that sit outside the norm.
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