Australian real estate is adjusting to higher interest rates, and those sectors where occupier demand remains strong have been the most resilient in a changing market.
Industrial and logistics has seen a sharp upward move in yields. However, strong rental growth has countered much of the value loss, although there remains a substantial bid-ask spread for office markets, and “we are beginning to see some transactions occur at significant discounts,” says Simon Howard, co-head of LaSalle Investment Management Australia. “We expect to see further softening until the current cycle of interest rate increases ends.”
For example, Australian investment manager Dexus sold 44 Market Street, a Sydney office building, for A$264 million ($172 million; €158 million) to a Hong Kong-based buyer in June 2023. The price reflected a 17 percent discount to the asset’s December book value.
As one of the few developed, liquid markets in Asia-Pacific, Australia has been popular with overseas investors. Howard says: “In general, foreign investors are adopting a wait-and-see approach, in anticipation of interest rates stabilizing. Asian investors still represent the biggest source of interest in the Australia market, followed by investors from Europe. American investors have not exhibited as much interest.”
17%
Discount in sale of Dexus’s Sydney office property
$16.9bn
Total amount targeted by funds in market
Louise Kavanagh, chief investment officer and head of Asia-Pacific real estate at US-based manager Nuveen, says: “Due to higher borrowing costs, investors have become more selective and expect higher price discounts. Purpose-built student accommodation is attracting increasing investment interest as the fundamental landscape of the sector continues to improve.”
The continued withdrawal of Australia’s “big four” banks from real estate lending has created a funding gap that is being filled by private debt players, says Howard. Commercial real estate investment in New Zealand more than halved in the year to March 2023, according to brokerage Colliers. However, the market is expected to stabilize over the rest of 2023.
November 2022
Paris-based AXA IM Alts launched an Australian build-to-rent strategy focusing on affordable and sustainable housing. Australian government entity National Housing Finance and Investment Corporation will contribute A$300 million ($202 million; €195 million) to the venture
November 2022
Charlotte-based investment manager Barings expanded its real estate debt business to Asia-Pacific with $225 million of loans in Australia and New Zealand
March 2023
Dexus added A$8 billion ($5.3 billion, €4.8 billion) in real estate assets under management with the A$275 million acquisition of Collimate Capital, the private funds management arm of AMP Limited, formerly known as AMP Capital
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