Offshore investment into the Australian industrial sectorMarch 27, 2015 / By
There is no doubt that offshore investment into Australian commercial property remains a hot topic across the industry. Approximately 30% of the 2014 transaction volume came from offshore parties. Until more recent years, offshore investors have been more active in the office, retail and hotel sectors. However, the Australian industrial sector is now garnering greater attention from offshore groups due to its attractive investment characteristics.
In 2010, offshore investment into Australian direct industrial property increased strongly with GIC Real Estate (Singapore) acquiring a portfolio of assets from Salta Properties and subsequently aggregating further properties to grow their market share. GIC subsequently formed a joint venture with one of Australia’s most active property developers and fund managers Australand to seed a fund targeting approximately AUD 440 million in value.
Other offshore investors followed suit. The National Pension Service of Korea (NPS) formed a joint venture with DEXUS to acquire stabilised property in Sydney and Melbourne. The Malaysian Employee Provident Fund (EPF) formed a joint venture with Goodman in the same vein. Both JVs have acquired significant scale in the Australian market.
This approach reflects the difficulty offshore groups have had in entering the Australian industrial sector. Without a development pipeline, many groups – including domestic managers – can find the aggregation process a challenging task.
Further offshore investment has followed since, notably Aviva Investors acquired a portfolio of properties in Sydney. Funds backed by offshore based capital have also been active, including Propertylink and Investec.
In a sign that offshore investors will play a greater role in the Australian industrial market, offshore investors were notably active through 2014. More than AUD 900 million was acquired directly by offshore groups, accounting for 19% of investment volume last year. Transactional highlights included: Malaysian based Kumpulan Wang Persaraan (KWAP) entered the Australian industrial market acquiring two facilities in Sydney for AUD 70 million and followed by acquiring the Super Retail Group portfolio in Sydney and Brisbane for a combined AUD 153.4 million, in the process setting a new price benchmark for this cycle. Invesco then made its first Australian logistics investment, acquiring the Kmart Distribution Centre in Melbourne for AUD 94.1 million. Meanwhile, Singaporean based Cache Logistics made its first investment into the Australian market earlier this year, acquiring three distribution warehouses for AUD 70.0 million.
It is worth noting that offshore investors accounted for 33% of transactions over AUD 50 million in 2014, preferring to invest in high quality and large scale opportunities, with strong tenant covenants and long WALEs.
The outlook for offshore investment in Australian industrial property is strong. In the recent global investments intentions survey published by ANREV, INREV and PREA, institutional investors have indicated they will allocate greater capital to the sector over 2015. Results showed that 60% of Asian investors are expecting to increase their real estate portfolio over the next two years; the industrial sector ranks second (behind office) as the preferred sector; and Sydney was the second most popular investment destination in the Asia Pacific.
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