Foreign investors go shy on local commercial property assets

There's been a significant reduction in overseas interest in Australian commercial property, according to the latest Foreign Investment Review Board figures.

After foreign investors made $231.2 billion of proposals (both conditional and unconditional) in the 2020-21 financial year and then $330.5 billion in 2021-22, proposals fell back to $171.5 billion in 2022-23.

The top 10 countries for approved commercial investment were:

  1. America = $34.5 billion.
  2. Singapore = $14.4 billion.
  3. Canada = $14.4 billion.
  4. Japan = $14.0 billion.
  5. China = $9.5 billion.
  6. South Korea = $6.6 billion.
  7. UK = $6.5 billion.
  8. Malaysia = $4.3 billion.
  9. UAE = $3.0 billion.
  10. New Zealand = $2.5 billion.

Ray White Commercial Head of Research Vanessa Rader said foreign investors bought up big in the 2021-22 financial year, as they hurried to invest in rapidly reducing yield assets. “During this time we saw a large investment into the office sector resulting in yields falling sub-4% in major CBD markets, with the United States and China representing the greatest interests in commercial investment,” she said.

However, foreign investors were cautious in 2022-23, because “the rising cost of finance and poor returns for major asset classes such as office and retail saw these foreign buyers reduce their exposure despite the favourable Australian dollar.”

Ms Rader said that despite the “trophy nature” of CBD office assets, foreign investors had been discouraged by poor occupancy levels and reduced income returns – and, in turn, yield growth.

“Over the last 12 months there has been a large uptick in disposals by foreign investors keeping net acquisition levels limited. While transactions continue to occur across these major asset types, there has been an uplift in alternative commercial investment classes with an increase in hotel and tourism investment and ‘residential’ investment, which includes student accommodation and build-to-rent (BTR) assets. This move away from core commercial investment is indicative of the limited confidence across these asset classes which have seen reduced capital returns,” she said.

That said, Ms Rader predicted an increase in foreign interest, due to a combination of favourable currency and improved affordability for many asset types.

“Historically, Australia and its ‘safe haven’ status has kept interest levels high in commercial assets, which is not expected to waver,” she said.

“Interest in development opportunities will continue, particularly given the underlying housing demand shortage, with BTR and student accommodation expected to aid in this regard. 

“While the trophy nature of office assets will continue to see buyers look toward these opportunities, their revaluation in a low occupancy environment will need to take place.”

Get in touch if you’re thinking about buying a commercial asset, whether it’s office, retail or industrial. I’ll compare different loan options for you and help you finance the deal.

Published: 30/10/2023

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