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Australia’s major property investors are less risk aggressive than their global counterparts and are unwilling to go offshore in the current economic climate, according to the Colliers International 2011 Global Investor Sentiment Survey released today.
The results have shown Australian investors now are reluctant to move out on the risk curve to achieve superior returns compared to six months ago, when the previous survey was undertaken.
Nerida Conisbee, Colliers International Director of Research, says Australian investors are targeting returns in the region of 5% to 15% - a relatively low target IRR against investors in other regions around the world where investors are seeking returns between 15% and 20%.
“The survey has shown the majority of Australian investors now see overseas markets as too risky at present, given economic conditions in major financial markets,” she said.
“This is an interesting finding for our shores, as the survey was conducted a week either side of the US debt rating downgrade on August 6 and in the midst of the impact this had on markets around the world.
Our global research team undertook an analysis of the results from before and after the downgrade, and overall it had limited impact on investors, which is certainly a good sign for real estate globally.”
John Marasco, Colliers International Managing Director of Investment Services and Chairman of Global Investment Services, says Australia’s major property players will continue to invest domestically over the next 12 months, mainly for reasons of social and political stability and the mining boom.
“Our investors continue to be upbeat about the state of the market, with most still seeing the market in early upswing,” he said.
“Just over 60% of surveyed investors indicated they were likely to expand their real estate holdings over the next six months, with just fewer than 18% stating it was unlikely. This level is higher than last year, when 46% of investors were looking to expand.”
Marasco said the top three acquisition targets will continue to be office assets in Sydney, followed by Melbourne and Brisbane.
This, given the strong performance in office markets around the nation this year, is something he is “not surprised” about.
Sydney was highlighted as the top long term hold, while Melbourne was the top short term hold consistent with our view of the rental cycle in these markets.
“Rental growth is expected to exceed the rate of inflation over the next three to five years, showing further confidence in the market,” Marasco said.
Although office assets are the preferred acquisitions targets, Marasco said it is also the top market sector for investors looking to sell - with Melbourne office assets slightly more likely to be to be disposed of than those in other cities.
“The strong demand for Australian office assets is encouraging many vendors to sell with many seeing this as an ideal time to take buildings to market to achieve the best price possible.
“Major property players are returning to core portfolios, a trend we have seen in recent times by the likes of REITs such as GPT, Stockland and DEXUS.”
Global health check
Ms Conisbee says global economic health is having an impact on sentiment in the Australian property market.
“Survey respondents cited concerns about the flow on impacts of problems in the US and Europe to Australia and New Zealand, with access to finance also proving an issue,” she said.
“Access to finance and cost of finance was not seen to have improved over the past six months. But a stablisation seems to have occurred. Half of all investors believe that conditions in lending markets have not changed, and there has been no change to the cost of debt.”
On a global level, Marasco says investors believe demand is rising, availability and vacancy are falling, and headline rents are on the rise.
“This optimistic outlook suggests they have the confidence to make buying and selling decisions — a confidence absent in 2008 and 2009, when investment sales dwindled to a fraction of their usual volume,” he said.
“Around the world, capital real estate flows have continued to grow with about 9,250 investment properties worth US$350 billion changing hands, an increase of 30% in volume over the same period in 2010.
“The real driver behind this result was positive growth within the America’s region, with the United States experiencing an increase of 124% in the value of commercial property transactions in the first half of this year.
“Other world regions also saw investment growth, with Europe Middle East and Africa (EMEA) increasing by 21% to US$87 billion, while Asia Pacific saw 12% growth over the year.
“The safety transparency and positive outlook for rental growth in Australian property markets means that global and local investors will continue to be active of the next 12 months further fueling transaction volumes.”
Other global highlights from the report include:-
* As evidence of investors’ renewed confidence in the global market, 85% of investors said they are likely to expand their portfolio in the next six months. In the 2010 survey, only 60% said they planned to expand their portfolio in the coming year.
* Most investors see the global investment market in early stages of upturn, but not necessarily for the same reasons. For example, in the US and Canada, cheaper and easier credit makes buyers more optimistic.
* In the Middle East and Africa, political risk is their primary barrier to expansion. In Asia, economic uncertainty is seen as the greatest risk. In Australia, the key concern is equity.
* Canadian’s have the greatest appetite for risk at 64%, and 60% of US investors said they are more aggressive than six months ago, a stronger shift in risk tolerance than any other region.
* Investors in Asia, Australia/New Zealand and Latin America see increased demand for suburban office space, while investors in other regions see a trend toward recentralization, resulting in lower demand for suburban office space.
* Latin American investors were most pessimistic, believing we are at the peak of the market. However, they also noted that there is insufficient supply of properties for sale, suggesting that investors are still interested in buying.
The Global Investor Sentiment Survey was conducted by Colliers International Research in collaboration with senior professionals from Colliers International’s Global Investment Services division. The survey was conducted August 1 to15, 2011. A comprehensive, 40-plus page report is available at www.colliers.com/globalinvestment.
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