Investors in the Asia-Pacific region are the most confident in the world about property investment conditions, according to a new global survey by Colliers International.
The 2015 Colliers International Global Investor Sentiment Survey has found sustained levels of strong economic growth and improving global conditions are the primary factors contributing to high levels of confidence among Pacific investors.
The survey found confidence continued to accelerate among local investors. Last year, 35 per cent expected conditions to continue to improve, compared to 60 per cent in 2014. Just 7 per cent expected a deterioration of conditions.
“With such high levels of confidence, the outlook for investment volumes is, not surprisingly, also positive,” John Marasco, Colliers International Managing Director of Capital Markets & Investment Services, said.
“Only 5 per cent of investors stated that they expected volumes to decline, with the majority (83 per cent) expecting an increase in 2015 compared to 2014 levels. This is a substantial increase from the proportion expecting an increase last year, as well as the highest percentage recorded in our survey globally.
”Year to date, investment volumes in Australia were slightly higher than the same time last year, with $19.8billion transacted across all asset classes compared to $17.7billion in 2013.
“Our understanding of deals currently in play, as well as the positive sentiment towards property investment, means that it is likely we will achieve similar investment levels in 2014 as we did in 2013,” Mr Marasco said. “Overall volumes are unlikely to exceed 2007 levels, however they will in some individual sectors and markets.
“Pacific investors continue to believe that good investment opportunities exist in the global market but are increasingly difficult to find. This lack of stock is now leading to more investors looking to behave differently to maintain strong returns.
“In Australia, we are therefore seeing more investors moving in secondary office markets and showing greater interest in industrial. We are yet to see many Australian investors move offshore however we consider it likely in the next two years as competition for stock continues to intensify.”
Reflecting this confidence in investment conditions and expectations about investment volumes, the proportion of investors planning to increase their portfolios has increased to 83 per cent compared to 72 per cent last year. Australian investors who have been particularly active in the market this year include AMP, GPT and REST.
Nerida Conisbee, Colliers International National Director of Research, said very few respondents (5 per cent) planned to reduce or sell their investments, with the main reason cited for doing this being the ability to reinvest profits later or elsewhere in real estate.
“The guiding principles for property investment remain consistent with last year,” Ms Conisbee said. “Property fundamentals remain the most important, followed by economic growth and then yield. Interestingly, given the focus on depreciation of the Australian dollar, this is considered to be one of the least important considerations.”
The number of investors willing to take on risk appears to have stabilised. Compared to last year, the survey found investors were less risk averse. In total, 55 per cent specified that they plan to take on more risk compared to 64 per cent last year.
“Since 2007, we have seen a widening gap between prime and secondary yields across all asset classes however for some asset classes, in particular CBD office, we started to see this gap narrow,” Ms Conisbee said. “Part of this has been some large A-REITs moving into higher risk property to diversify their portfolios and target higher yields.
“However, strong offshore interest in secondary CBD office from Asian investors for residential and hotel conversion opportunities have also played a role.”
The majority of Australian and New Zealand investors continue to prefer to invest locally. The survey found Australia remained the most popular investment destination, followed by New Zealand. Other countries rarely featured.
“This is consistent with capital flows out of Australia, with very low levels of investment by Australian investors being recorded,” Mr Marasco said. “At present, the only investors going offshore with significant amounts of funds are the superannuation (pension) funds.
“This is in stark contrast to 2007, when most offshore activity was by A-REITs. At present, A-REITs are continuing to focus on local markets however we think it is likely that some will look to move offshore again in the next two years as access to stock continues to become more constrained.”
The city in which Pacific investors prefer to invest is Sydney (58 per cent), followed by Brisbane (44 per cent) and then Melbourne (43 per cent). Compared to previous surveys, Ms Conisbee said such strong interest in Brisbane was a new trend, likely reflecting the higher yields currently being achieved in this market.
Offshore investors coming into the Australian market, such as Blackstone, Invesco, Hines, TIAA Henderson and Growthpoint, are showing similar preferences to Pacific investors, concentrating on eastern seaboard.
Consistent with sales volumes, CBD office continues to be the preferred investment product among local investors (39 per cent). This is consistent with 2013 levels (40 per cent). Industrial and Logistics has become a far more popular investment class compared to last year.
In 2014, 36 per cent of respondents indicated that this was their preferred investment class. This is an increase from the 27 per cent recorded in 2013. “Interest in residential and development sites has also increased significantly since last year, reflecting the improving housing market,” Ms Conisbee said.