Foreign investment in the commercial real estate sector has dipped significantly during the COVID-19 pandemic but it’s not necessarily for lack of interest, according to industry experts who believe that Australia and New Zealand are well positioned for a rebound in foreign investment after the pandemic.
The latest RICS Global Commercial Property Monitor showed that foreign capital inflow into the Asia Pacific region dropped by more than 40 per cent in the first three months of 2020, with the Canberra, Adelaide and Gold Coast markets hit particularly hard.
But Dexus’ general manager of research Peter Studley said those figures “didn’t gel” with what he had been experiencing on the ground.
Australia was particularly well positioned for a recovery in foreign investment once the pandemic was over, he said.
“The foreign investors we are talking to are still quite keen on Australian property, and in particular for office and industrial [assets] in the major city locations,” said Mr Studley, who was speaking at an industry briefing on Wednesday.
“The reasons they liked Australia in the first case have been amplified, which are stable economy, strong population growth and the way we’ve weathered the virus as well, and we seem to be coming out of it or at least stabilising the infection rate and lifting mobility ahead of some other countries. I think that’s probably going to make us more attractive to foreign investors rather than less.”
It’s a similar story in New Zealand, where beyond Auckland smaller markets such as Christchurch had been emerging as foreign investment hotspots before the pandemic hit.
“We still expect to be getting [similar] sentiment from international investors when they are allowed to visit [New Zealand] a little bit more. They’re definitely keen to get back into what they were doing, there’s still a lot of money that’s looking for a home and with the low interest rate environment … trying to connect that low interest environment with higher-yielding assets is definitely of interest,” said Chris Dibble, the New Zealand-based national director at Colliers partnerships, research & communications.
Mr Studley attributed the drop in transactions both by domestic and foreign investors in the Australian market to a “wait and see” approach as investors weigh the impact of potential rent reductions on an asset’s return rate.
“It’s a complex story. We have seen an overall drop in transaction volumes in the past couple of months and I think that’s because buyers have become more cautious and sellers have too for that matter, just trying to assess the impact of the current environment on the income line,” he said.
The majority of respondents in the latest RICS Global Commercial Property Monitor, most of whom are valuers accredited by RICS, believe that Australia’s commercial property market is in a downturn.
Some 63 per cent of respondents said the market was in a downturn, compared with 16 per cent who believed it was in an upturn and 12 per cent who thought it was at a peak.
The Newcastle and Gold Coast markets were thought to be the most likely to experience a downturn.
The survey responses were collected between March 10 and April 16, when a number of states were beginning to introduce lockdown rules.
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