Australian logistics and industrial asset transaction volumes may reach a new record this year following a booming third quarter, as overseas investors, lured by a weaker Aussie dollar, snapped up prime assets.
Transaction volumes in the three months to September reached AU$2.4 billion, almost triple the AU$840 million registered in the same period a year ago. A total of AU$3.8 billion worth of assets have been sold so far this year, based on the latest quarterly data from JLL.
“With over AU$1 billion in portfolios currently in the market, among them assets from JP Morgan, Charter Hall and Goodman, we are on track to beat last year’s record,” says Michael Fenton, JLL’s Head of Industrial in Australia.
In 2014, the Australian industrial investment market had a record year with transactions totaling AU$5.1 billion, exceeding the previous best set in 2007 and increasing 39 percent year-on-year versus 2013 transaction volumes. Offshore investors accounted for 33 percent of transactions over AU$50 million in 2014.
This year’s third-quarter performance was given a major uplift by Ascendas Real Estate Investment Trust (A-REIT)’s purchase of a 26-strong industrial logistics portfolio from GIC and Frasers Property for AU$1.073 billion. The institutional grade portfolio was the largest and highest quality offering ever made in Australia. The portfolio was highly contested with five short-listed offshore bidders lodging bids above AU$1 billion.
“The GIC sale process was a clear demonstration of the weight of capital vying for Australian industrial assets,” says Fenton. “We can estimate from the unsuccessful bidders that there is an aggregate of AU$10 billion of unsatisfied demand seeking exposure to Australian industrial assets.”
The top two acquisitions of Australian industrial assets in the quarter were by Asian buyers – namely Ascendas and Mapletree Logistics Trust. In July, Mapletree bought Coles Distribution Centre in Eastern Creek, New South Wales, for AU$253 million.
“We are seeing continued demand for high-quality and large scale assets that come with strong tenant covenants,” said Stuart Crow, Head of Asia Pacific Capital Markets. “Foreign investors are drawn to the market because of the weaker Aussie dollar and relatively attractive yields, compared with other markets.”
In a global investment intentions survey published by ANREV, INREV and PREA in January, institutional investors have indicated they will allocate greater capital to the sector over 2015. Results showed that 60 percent of Asian investors are expecting to increase their real estate portfolios over the next two years; the industrial sector ranks second (behind office) as the preferred sector; and Sydney was the second most popular investment destination in the Asia Pacific, after Tokyo.
In the Asia Pacific region, real estate sales in Australia have led transaction volume growth in the quarter, accounting for about a third of investment. Capital flows in Asia Pacific totaled US$33 billion in the quarter, about 2 percent higher than the same period a year earlier. The year-to-date volume is also running 2% ahead of 2014’s full year total of US$89 billion, according to JLL’s latest Global Capital Flows report.
Industrial properties aside, July saw Chinese sovereign wealth fund China Investment Corporation (CIC)’s purchase of Investa Property Group’s portfolio of nine office towers for $AU2.45 billion, making it the biggest direct real estate transaction in Australia’s history.
“Australia is the most transparent real estate markets in the Asia Pacific region, due to attributes such as good market data availability, fair transaction processes, high standards of regulatory, accounting and corporate governance,” says Megan Walters, Head of Capital Markets Research for Asia Pacific.
Head of Industrial, Australia, JLL