This was published 7 years ago
Investors tipped to pump more than $30 billion into bricks and mortar this year
The new year has started with a bang, with big sales being promoted as investors circle the higher-yielding bricks and mortar.
One of the latest is a 25 per cent stake in the $1.9 billion Wynyard Place retail and commercial development. Advisors JLL's Simon Rooney. Paul Noonan, Rob Sewell and Simon Storry say more deals are in the offing.
AMP's 33 Alfred Street and, behind, an artist's impression of the Quay Quarter Tower at 50 Bridge Street.
Ending 2016 was AMP Capital's purchase of the 33 Alfred Street office tower for a suggested $430 million, reflecting the hot investment market.
It is expected the amount of cash seeking out assets in the coming year will overtake the $30 billion-plus of sales over the past two years, as overseas capital flows in to battle it out with the Australian real estate investment funds.
The only dark cloud on the horizon is the lack of available assets.
According to Matthew Meynell, head of investment services for Australia at Colliers International, commercial investments continued to see yield compression throughout 2016 supported by true property fundamentals of effective rental growth and increased demand.
"Australian commercial real estate is a key global investment jurisdiction for sophisticated investors with the market being so liquid and transparent. The Australian market has continued to draw offshore investment with a significant pivot to where the offshore funds are coming from," Mr Meynell said.
"If we look back to 2007 the top three inbound investors were the US and Canadian pension funds followed by Singapore with a total investment of $14.5 billion, and if we look at 2015 the top three inbound investors were China, Singapore and the US with $15.2 billion.
"Investment in 2017 will continue to be supported by onshore and offshore demand and we expect to see further yield compression in the vicinity of .25 to .50 in most major markets, and more particularly on the eastern seaboard.
"Due to the demands in the CBDs and limited stock available, we predict potential for greater yield compression in the metro markets as investors move up the risk curve as they chase stronger yields."
Dominic Brown, the head of research, Australia & New Zealand, at Cushman and Wakefield said the Australian commercial real estate investment market ended 2016 on a strong note, recording a total investment of $9.7 billion over the fourth quarter.
"In annualised terms, investment volume in 2016 reached $30.1 billion to marginally exceed the $29.9 billion recorded in 2015," Mr Brown said.
Martin O'Sullivan, head of institutional sales, Victoria, at Knight Frank, said 2016 saw significant demand for Melbourne property, and he is anticipating that to continue this year.
"Demand has been assisted by global events such as Brexit, with money looking for secure, less-volatile markets. Melbourne is seen as a steady market," Mr O'Sullivan said.
"Yields are continuing to firm, and we are starting to see real signs of rental growth. This has supported demand for A-grade assets in Melbourne.
"We've seen the Chinese move into more income-producing property, as opposed to purely development-related residential assets."
AMP sale
Under the last deal of 2016, the AMP Capital Diversified Property Fund (ADPF) and AMP Capital Wholesale Office Fund (AWOF) acquired 33 Alfred Street, Sydney, on behalf of their investors for an undisclosed amount, said to be about $430 million.
Owned by AMP Life, 33 Alfred Street is AMP Limited's headquarters and is a 26-storey A-Grade office tower in Circular Quay, adjacent to the proposed Quay Quarter Tower at 50 Bridge Street.
The acquisition consolidates the ownership of an entire 1.1 hectare block on Circular Quay and provides investors with exposure to a quality office tower in a premier location with the opportunity to create further value going forward.
In addition, AMP Capital has secured a major anchor tenant in the development, with AMP group committing to 36,500 square metres of the Quay Quarter Tower at 50 Bridge Street from 2021.
AMP Capital global head of real estate, Carmel Hourigan, said the purchase of 33 Alfred Street was an excellent outcome for all parties involved.
"We are pleased to announce this transaction, in which the investors in AWOF and ADPF have acquired an A-Grade asset in a premier Sydney CBD location as well as simplifying the development pathway for the exciting Quay Quarter Sydney (QQS) precinct," Ms Hourigan said.
"QQS will realise a once in a generation opportunity to create a globally significant precinct and new urban neighbourhood, and provide a catalyst for the renewal of Circular Quay."
Subject to final investor approvals, construction is expected to begin in 2018 and take about three years to complete.