China now the largest overseas investor in Australian property
China has emerged as the largest overseas investor in Australian commercial property with in excess of $5 billion worth, following the deal to buy nine premium office towers by the sovereign wealth fund, Chinese Investment Corporation.
The portfolio was sold by Morgan Stanley Real Estate for an estimated $2.5 billion as part of its transaction to sell out of its interest in the Investa Property Trust platform.
It is the biggest ever single direct real estate sale in the Australian market and will skew the ownership of the sector towards more foreign owners, once all necessary approvals have been received.
Located largely in the Sydney CBD, the Investa flagship assets include interests in 126 Phillip Street, 225 George Street and 400 George Street, Sydney; and 120 Collins Street in Melbourne.
The remaining part of the Investa sale is the broader management of the group, which includes the Investa Office Fund and the unlisted commercial property fund. Interested parties include Mirvac, among others, or the current Investa management, through an internalisation.
Once the deal is completed CIC will be the third biggest office landlord in Australia, behind DEXUS and GPT Group. Its entry is the first of the large Chinese wealth funds and is expected to trigger more deals from other parts of that country.
Colliers International's national director of research, Nerida Conisbee, said not only is ownership becoming more concentrated among institutional and overseas groups, CBD office assets are also becoming increasingly concentrated among fewer owners.
"Whereas in 2009, the top 10 groups owned 29 per cent of total stock, in 2014 this has increased to 35 per cent," Ms Conisbee said.
Asian-based investors have been active buyers of Australian residential property and older office towers that can be converted into apartments, for the past three years.
Korean and Singaporean investors have shown a preference for high profile hotels.
The Investa deal indicates that premium-grade office towers with blue-chip tenants are now in the sights of overseas investors.
CBRE's head of research Australia, Stephen McNabb, said in the period from January 1, 2014 to March 31, 2015 Chinese direct investors were the second largest purchasers of commercial property in Australia, after Singapore and ahead of the US. Chinese investors accounted for one-third, or $3 billion, of the $9 billion in foreign capital invested in commercial property assets nationally, with that momentum continuing to build.
"Flows from China into global markets are expected to remain firm, with potential upside, as regulatory changes over the past three years have allowed a higher investment allocation into real estate for life insurers, rising from 10 per cent to 30 per cent, and offshore investment to a limit of 15 per cent across all asset classes," Mr McNabb said.
According to Knight Frank's group director of research & consulting, Matt Whitby, alongside this growing investment from China, Australia's office leasing market activity is increasing.
He said Australia's commercial occupier market is benefiting from increasing capital flows and investment from China, according to Knight Frank.
Office leasing movement in Brisbane, Melbourne and Sydney is being spurred by Chinese developers, banks and fund managers as they increasingly develop and grow their global platforms.