Asian capital has played a sustaining role in Australia’s real estate market during the lengthy period of COVID-19 lockdowns and closed borders, and APAC-sourced investment is poised to accelerate once the country opens up to the world next week, according to a panel of experts in the latest segment of Mingtiandi’s Office Strategies Forum.
For Thursday’s one-hour session on MTD TV, which was sponsored by Yardi, Mingtiandi founder Michael Cole welcomed speakers from real estate investment firm SC Capital Partners, property consultancy JLL, data provider Real Capital Analytics and Australian developer Perri Projects for a wide-ranging chat about Asian investors’ growing role in the office sector Down Under.
Representing RCA, which opened a Sydney office earlier this year, managing director David Green-Morgan predicted that Asian capital would represent more than half of foreign investment into Australian real estate for 2021.
“Interestingly, on a proportional basis, the overseas capital was stronger last year in Australia than it has been this year,” Green-Morgan said. “But on a dollar basis, obviously, the amount of money being spent is much higher this year.”
Singapore, Korea Flex Muscle
Singaporean capital has been especially active in Australia’s office segment, including with AIMS APAC REIT agreeing to purchase retailer Woolworths’ Sydney headquarters for $335.4 million last month, while South Korea also made a big splash with its National Pension Service’s acquisition of Lendlease’s Melbourne Quarter Tower for $900 million in July.
Green-Morgan allowed that Australia’s COVID response may have dampened domestic investors’ optimism, effectively amplifying the impact of external capital.
“Each country kind of went into the pandemic at a different stage, and the recovery has been at different speeds,” he said. “Maybe last year as Asia was recovering, and Australia was going into the lockdown, the capital was taking a slightly more contrarian view, and I think we saw a bit of a pullback by the domestic groups. And given the weight of capital that everybody has talked about, it doesn’t need much of a pullback by the domestic groups in Australia for the overseas capital to take advantage of some of the opportunities.”
Andrew Heithersay, a managing director, partner and investment committee member at Singapore-based SC Capital, relocated to his native Australia in May after a long stay in Asia stretching back to the 1990s. On MTD TV, he was quick to talk up the appeal to investors of office assets in his home patch.
“In Australia there is still a relative yield premium over other Asian cities, so I think there are probably a couple of key drivers,” Heithersay said. “Just the sheer weight of capital trying to find-high quality assets in a stable environment, and Australia does enjoy legal transparency, political stability, long-term growth, and all of those ingredients create an interesting, long-term investment destination.”
Heithersay has managed investments in office assets in Melbourne, Canberra and Sydney on behalf of SC Capital’s core-plus and opportunistic funds, including buying 2 Elizabeth Plaza in North Sydney from BlackRock last year. After his firm began this year with five completely vacant office buildings undergoing refurbishment, two of the buildings are now 100 percent full and another two are 65 percent occupied.
“I think you just have to adapt to the market situation, hit the mark on incentives — speculative fit-outs to the smaller tenants have been extremely attractive,” Heithersay said. “So you really just have to be adaptive to the market conditions and the demand is there.”
Pandemic’s End in Sight
Fergal Harris, who leads capital markets for JLL Australia, echoed Heithersay’s appraisal of the commonwealth as an attractive market for Asia-based investors, particularly mid-sized players.
“It’s easier for Asian capital to come in and transact in around A$200 to A$300 million, where in previous years of volume in the CBD (asset prices) would have been going north of that,” Harris said in comparing investment during the pandemic to previous years, when assets were achieving higher pricepoints. He added that, “So we think that trend continues, and we think that that is clearly very attractive for global capital looking at that arbitrage between yield and the risk-free rate on top of the low cost of debt capital.”
Investors dealing with JLL are starting to look past COVID with the conviction that the crisis will end soon. “It went on obviously longer than we anticipated, but with the borders opening on the first of November to international arrivals, internal borders opening shortly thereafter, I think we’re starting to see the confidence return,” Harris said.
Resurgent confidence is music to the ears of David Scalzo, whose Perri Projects has built developments including Bennetts Lane, a 12,000 square metre (129,167 square foot) office-retail complex in Melbourne’s CBD set for completion next year.
“There’s no doubt, from a development perspective, the future of office is going to be a little bit different in terms of new products or will be a repositioned product from what it has been,” the managing director said. “I think there’s going to be a very segmented market, it’s very hard to generalise. There will always be a very deep market for the sort of things that are large in scale, triple-A locations, long-term leases and secure covenants. And they’re very hard to develop, but I think there are opportunities for some of the Asian investors.”
New Economy in Focus
Mingtiandi’s Office Strategies Forum concludes on 2 November with a one-hour session on Assets for Asia’s New Economy. Scheduled speakers include Tim Graham, head of capital strategies for Asia Pacific at JLL; Terence Seah, director and head of Hong Kong, Singapore and Shenzhen for global design firm Benoy; and Augustine Chin, a director with Swiss private equity fund manager Asia Green Real Estate.
The panel will discuss how the rise of the tech industry is reshaping office markets in Asia Pacific. MTD TV picks up again in late November with the Property Innovation Forum, where Mingtiandi will announce the results of its survey of property professionals in the region and reveal how developers and investors are implementing new systems.
Beatrice Laforga provided reporting for this story.