Australia's top institutional and private investors believe the nation is well and truly past the bottom of the property cycle and now heading towards  upswing, according to new survey findings released today by Colliers International.

The second Colliers International Investor Sentiment Survey, conducted late last month, has shown investors around the country believe that if the property cycle were a clock, with the top of the market at 12 o'clock and the bottom at 6 o'clock, Australia moved upwards to 7 o'clock in Q3-09, after the majority of investors believed the same clock sat at 5 o'clock when they were first surveyed in May for Q2-09.

Participants, which were a broad cross-section of property investors surveyed to gauge their sentiment of the Australian market, had a wide range of property investment portfolio sizes, with 36 per cent of respondents having a portfolio in excess of $AUD1 billion, followed by 20 per cent valued between $100 million and $500 million and 16 per cent between $500 million to $1 billion.

The majority of investors, at 52 per cent, believe Australia is not only past the bottom of the property cycle, but 64% also believe the upswing will occur earlier than indicated in the first survey - by Q2/Q3 2010 or even earlier, instead of in Q4 2010.

Felice Spark, Colliers International Director of Commercial Research, said the positive response signifies that investor sentiment for Australian property markets has clearly improved over the past three months.

"We have seen a number of positive economic indicators come to light in recent months, and this has no doubt strengthened market sentiment and investor confidence with respect to property," she said.

"Another positive quarter for Gross Domestic Profit growth, stable interest rates, and the unemployment rate not rising at the pace earlier predicted, have all contributed to the sense of growing optimism about the market recovery."

When asked how they would describe their property investment strategy over the next 12 months, the majority of investors, almost half at 49 per cent, identified they were heading into growth mode, with 43 per cent in defend mode or holding steady. Only 8 per cent were expecting to contract holdings.

Investors also signalled the green light to purchase property is now definitely on. 69 per cent now expect to buy property in Australia over the next 12 months, up from 63 per cent in May.

Investors also expect it will become easier to buy property with 47 per cent  believing access to debt capital will become easier in the next 12 months, versus just 20 per cent in the May survey.

Most investors, at 45 per cent, are looking to buy office property, with the top 5 buy markets identified as Sydney Office (20 per cent), Melbourne Office (15 per cent), Sydney Residential (7 per cent), Melbourne Residential (6 per cent) and Sydney Industrial (6 per cent).

John Marasco, Colliers International Managing Director of Investment Sales, said 65 per cent of investors believe Sydney will provide the best investment value of all markets, followed by Melbourne at 23 per cent.

Office was the most preferred investment sector with 57 per cent of investors identifying it as the sector which would provide the best investment value over the next 12 months. Sydney office was again voted the top spot in Australia for investment value.

Internationally, office markets were also the top pick, particularly in Asia and North America.

"Investors said their top priority in the coming year will be to maximise occupancy to secure cash flows, but selective acquisitions had crept up the list and has now become a more important priority as investors look to buy well," he said.

"Refurbishment and value-add opportunities are also being increasingly considered this survey to reposition secondary buildings for the upswing.

"Investors also noted that the opportunities to buy are now, particularly to take advantage of mispriced under-valued assets, targeting distressed assets and the opportunities for scarcely traded prime grade assets which could come on the market."

Ms Spark said the majority of investors believe yields have stabilised across the commercial and residential sectors.

"About one third of respondents believed there may still be some future softening of yields across the commercial sectors, but only in the order of 25 to 50 basis points. Similarly, about 20 per cent of respondents believe we may even see yields begin to tighten now," she said.

Across the office and industrial sectors most investors believe net effective rents will fall by a further 5 to 20 per cent, depending on the market before they hit bottom, while the majority believe net effective rents would only soften by a further 5 to 10 per cent on average.

"Most investors believe net effective rents will hit the bottom of the market by Q2 2010, indicating we still have some further rental softening and potentially more increases to incentives to come," she said.

Less investors are now considering selling property this quarter according to the research, with 66 per cent considering selling in the next 12 months, versus 70 per cent in May. An increased percentage of investors in this survey are now looking to sell industrial property.

Mr Marasco said the top reasons for selling continue to be to reduce gearing or to sell up to reinvest elsewhere; however due to the recent capital raisings which have occurred, more investors said that the need to sell to release funds had diminished and a number were now not planning to sell and had withdrawn assets from the market.

The survey also revealed opinions on how property values had changed since the peak of the market before the Global Financial Crisis struck. Across the office and industrial sectors, the majority of investors believed values had declined by 20 to 30 per cent.

Ms Spark said investor opinion on values has worsened since the survey conducted in May, and this has no doubt been reflected by the reality of end of year valuations and the reporting season.

"The commercial sector which received the most favourable opinions on value declines was the retail market with most investors believing values had declined by just 10 to 20 per cent on average since the peak," she said.

"Overall, most investors believed values might experience some further softening across all the commercial sectors ranging from 0 to 10 per cent, but at least 20 per cent believed values had already hit the bottom."

Residential was again the standout property sector with the majority of investors believing values had only declined by 1 to 10 per cent since the peak of the market, while 16 per cent believed residential values hadn't changed at all, or even witnessed some growth. The majority of investors believe there will be no further softening to residential values and 8 per cent believe there will now be growth.

A new inclusion for the Q3-09 survey regarded the next development cycle, with the research revealing 80 per cent of investors believe the Australian office and residential markets will face a critical undersupply when the market recovery gets underway and the Sydney office market was identified as the market where the first development cycle would kick off.

For those investors who said they owned a DA approved site, most indicated they were expecting to start construction sometime around mid next year.

 

For further information please contact:

Sarah Stewart  
National Communications Manager  
Tel: +61 2 9257 0210  
Mob: +61 411 66 1544       
Email: sarah.stewart@colliers.com  

Felice Spark
Director of Commercial Research
Tel: +61 2 9257 0289
Email: felice.spark@colliers.com

John Marasco
Managing Director of Investment Sales
Tel: +61 3 9612 8830
Email: john.marasco@colliers.com