Australia
Australia has enjoyed 27 years of continuous GDP growth and, according to IMF figures, the country can look forward to a further 3 percent in 2018.
While subdued private consumption growth, household debt levels and the longevity of low interest rates merit concern, overall the combination of GDP and population growth continues to fuel demand for real estate. Investments in infrastructure, such as the new metro and light rail systems in Sydney and Melbourne, provide attractive new submarket opportunities in the real estate space.
Foreign investment continues to flow into Australia but at a significantly reduced rate compared to previous years: H1 2018 transaction volume has declined by 52 percent compared to H1 2017, according to CBRE data. The biggest foreign investors in Australia in H1 2018 are the US ($994 milion), Singapore ($626 million) and Hong Kong ($560 million).
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Number of Australian-based funds in market
$2.47bn
Capital targeted by Australian-based funds in market
Chinese investment has accounted for just $250 million in H1 2018, down 81 percent from the $1.3 billion recorded in H1 2017. This general downward trend in Chinese direct investment in 2018 is mirrored in the real estate market, which is at its lowest level since 2012 and a far cry from the $2 billion peak reached in H1 2015 when Chinese capital accounted for 43 percent of offshore investment in Australian property. This is proof that Chinese capital controls are biting. If the restrictions continue, CBRE expects Chinese investment in Australia to record its lowest level since 2012.
Office: In 2017 the market experienced its lowest level of net supply for 20 years according to CBRE, causing vacancy rates in central business districts (CBD) to decline to 9.7 percent by year-end. Only Sydney and Melbourne CBD office markets registered effective rental growth in Q1 2018. The constrained supply in a number of markets and improved absorption in 2018 leads CBRE to expect further decline, with a cyclical vacancy low of around 8.4 percent by mid-2019.
Retail: Sales grew by 2.5 percent in the year to February 2018. Rents from retail property were static nationally in Q1 2018: only Sydney’s CBD bucked that trend with the rent in prime and secondary locations growing by 1.7 percent and 2.2 percent respectively. Q1 2018 investment activity in retail real estate experienced one of its slowest starts since 2012, consistent with patterns in the office and logistics sectors.
Logistics: Industrial and logistics yields have compressed further to reach record lows, according to CBRE. In Q1 2018, Sydney super prime yields were the sharpest in the country at 5.08 percent followed by Melbourne at 5.25 percent. Yields compressed by 25 basis points in all markets except Brisbane.
New Zealand
New Zealand has enjoyed economic expansion since 2011. According to the IMF, the country’s GDP is expected to grow by 2.9 percent in 2018, in line with the 3 percent recorded in 2017, but down from around 4 percent in 2014-16. A number of factors have supported this expansion: monetary policy, a net migration wave that has edged the population close to a high of 5 million, improving services exports, stronger trade terms and lower than average interest rates. However, the cost of fixed interest rate debt has started to increase, causing lenders to tighten their lending criteria.
Looking specifically at the real estate market, there has been an increase in residential construction activity, but non-residential construction activity has weakened, according to Savills Investment Quarterly Q1 2018. The weight of offshore capital seeking Auckland office assets has driven yields to a historic low at an average of 5.98 percent, according to JLL’s Q2 market report. In Wellington, the capital, the office vacancy rate in the CBD remains virtually non-existent at 0.3 percent. 
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