Canberra – capitalising on global uncertainty
September 6, 2019 / By Georgia van der Westhuizen
On the back of geopolitical and economic disquiet, Canberra has become a compelling investment proposition for offshore buyers. The US-China trade war, Brexit, Hong Kong protests, and the rise of European nationalism have made Australia’s political landscape appear the picture of stability. Ranked the most transparent real estate market in Asia Pacific, with high liquidity and historically low interest rates, investment in Australia is more attractive than ever. However, rapid growth in capital values in Sydney and Melbourne have deterred some new entrants to the market, prompting a pivot to other capital cities – with Canberra the rising star of 2019.
The Canberra offering
The Australian Capital Territory now boasts the lowest unemployment rate in the country, the second largest infrastructure pipeline, second highest population growth rate and the second highest retail turnover growth (4.0% year-on-year in Jun-19, above the national average of 3.0%). Economic growth is forecast at an average of 2.9% over the next four years, following strong international and interstate migration into the Canberra workforce.
Long WALEs (weighted average lease expiry) and strong leasing covenants from the high proportion of government tenants in Canberra offer additional stability and diversification benefits. The Canberra market records the second-highest proportion of prime grade stock of all CBD markets, at 61.5%, with 25% of buildings under ten years old. Furthermore, yields for prime office assets in Canberra are attractive relative to the Sydney and Melbourne CBDs.
Investors are taking notice. Singapore-based SC Capital Partners, upon the acquisition of Canberra’s Finlay Crisp Centre in May (AUD 62 million), noted ‘Canberra’s defensive office occupier market’ coupled with ‘strong tenant demand from Government’ as central to the investment rationale. Similarly, Japanese real estate development giant, NTT Urban Development, chose 121 Marcus Clarke Street in Canberra for their first investment in the Australian office market in April. This has shown a notable shift from the traditional Sydney/Melbourne investment preference.
Who has caught on?
Now with aging populations, Japanese and South Korean pension funds have expanded and looked internationally to grow their returns. Canberra has long represented a stable investment destination with long-term returns for conservative investors. German investors’ interest in Canberra is well evidenced, with two office purchases in the last 12 months, and another sale conducting due diligence. For Germany, Australia represents the diversification benefits of being in the Asia Pacific region, while offering stability of a mature market and high transparency. Lastly, Singapore was Australia’s largest foreign investor in commercial office stock last year. Singapore has been a champion investor in emerging Asian markets, with Australia then offering asset variety and the comforts of a mature economy. While Singaporean capital has been largely concentrated in other east coast cities, inquiry into the Canberra market is growing.
As other investment hubs navigate geopolitical challenges, Australia’s international appeal is on the rise. Canberra’s relative economic and political stability, economic growth, and quality stock represent a compelling investment case amidst mounting international uncertainty. International capital is likely to continue to flow into Canberra as more investors recognise the opportunity on an absolute and relative basis.
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