global capital flows first half 2012

7/31/2019 Global Capital Flows First Half 2012

1/8

GLOBAL CAPITAL INVESTMENTIN AUSTRALIA

RESEARCH & FORECAST REPORT

www.colliers.com.au/research

Asian Capital Dominates Acquisitions

Foreign investors have continued to direct capital into Australian property markets over the

second hal o , purchasing assets valued at . billion, during the six month period. Acombination o property portolio sales, direct property transactions and company, und and

REIT takeovers and mergers during , led to a total o properties with a value o circa

. billion changing hands over the course o the year, up rom . billion during .

An unemployment rate o .%, annual GDP growth o .% and higher yields or Prime grade

assets, compared to other global markets, made the Australian property market an attractive

place or investment in . In addition to this, economic, polit ical and transactional transparency

continue to drive oreign capital to Australian property markets.

Over the course o the year, oreign buyers made up % o commercial transactions within

Australia. Asian investors continue to dominate ofshore capital inows into the Australian

market, making up % o all oreign property asset purchases in the second hal o .

Evidence o the determination rom ofshore buyers to secure the right asset can be seen in the

of market transactions which have been secured at below market average yields.

Examples o this are; Memocorps of market acquisition o George Street in Sydney at a

yield o .% which is considered to be to basis points below the total market A grade

average and Avivas % purchase o Hoxton Distribution Park at .%, being basis points

below the market average.

MARKET INDICATORS FORECAST - 6 MONTHS

OVERALL PERFORMANCE

OFFICE

INDUSTRIAL

RETAIL

HOTELS

AUS/US

FIRST HALF 2012 | NATIONAL

Suncorp Place, 259 George Street, SydneyLargest purchase o o ce asset in last months.Memocorp purchased this asset in July or million.

Foreign buyers made up 42% o allcommercial property transactions in 2011.

Asian buyers comprised 34% o all ofshorecapital inows into Australian propertymarkets in 2011.

There was circa $8.1 billion worth o oreigninvestment in Australian property in 2011 up60% rom $5.1 billion in 2010.

KEY HIGHLIGHTS

CAPITAL FLOWS INTO AUSTRALIAN PROPERTY SECTORS SECOND HALF 2011

Number oSales

Value o SalesAverage

YieldAverage Sales

RateLargest Capital

Flow Origin

LargestCapital FlowDestination

OFFICE

,,, .% , United States Sydney

INDUSTRIAL

,, .% , United Kingdom Sydney

RETAIL

,, .% , United States Sydney

HOTEL

,, N/A , United States Gold Coast

TOTAL MARKET

,,, .% , United States Sydney

Source: RCA/Colliers International Research


2/8

Investment Trends

WHOS INVESTING

The calendar year saw a broad range o oreign investors entering into Australian property

markets both directly through the acquisition o individual assets or portolios or indirectly viainvestments in non-perorming loan portolios, the take private o listed AREITs, Joint Ventures

and Mezzanine Loans . In the case o Joint Ventures and Mezzanine Loans many o the groups

investing in these sectors have taken advantage o the tougher credit conditions imposed by the

GFC and a greater need or equity and debt rom most major local property groups. Investors

have included private high net worth individuals, pension unds, sovereign wealth unds and

major private equity groups. Examples o some o the larger private equity groups and

Investment Banks to that invested in Australia during include Morgan Stanley Real Estate

Investing, LaSalle Investment Management and JP Morgan. Blackstone

RETURN PROFILE

Core investors who are yield driven and take long term positions are primarily rom the Europe

and the US and include some o the worlds largest pension unds. These investors are targeting

secure Prime grade assets with long secure leases in place. Asian investors have mainly been

directing their investment positions to targeting those assets in which they can add some value

to take advantage o a short to medium term capital gain. Private equity rms are opportunistic

investors who are typically seeking an IRR on equity invested o % or more.

Another trend over the course o the year was not only the strong appetite or oreign investors

or direct assets but also the increasing demand or indirect investments in property companies,

non-perorming loans and mezzanine lending. Some examples o these indirect investments

include:

US Private equity rm Blackstone took the

publicly listed Valad Property Group private

through cash consideration o A. per

stapled security. The deal valued the

companys shares at approximately mwith Blackstone also taking on m worth

o liabilities, the overall ofer was valued at

m. With a much stronger balance sheet

Valad is rmly back on a growth trajectory.

The last week o saw Orchard Funds

Limited sell its unds management business

to a Global private equity real estate und

managed by Morgan Stanley Real Estate

Investing. In addition to acquiring the

responsible entity o Orchard, Morgan

Stanley Real Estate Investing has

recapitalised three o Orchards propertyunds being; the Orchard Diversied

Property Fund, Orchard Commercial O ce

Fund and Chevron Renaissance Property

Trust, through capital injections and rights

issues o A million.

Also in December the same Morgan Stanley

Real Estate Investing Fund acquired a

portolio o non-perorming loans with a

ace value o million rom Lloyds Bank

Australian subsidiary the Bank o Scotland

International. The loans are primarily

secured by various completed development

projects and development sites on theGold Coast.

December saw Government o

Singapore Investment Corporation (SGIC)

a liate, Reco Ambrosia Pte, and the Public

Sector Pension Investment Board o Canada

sign a binding agreement to pay . billionor % o the Charter Hall O ce REIT

(CQO). The agreement was signed on the

condition the REIT completes the sale o its

U.S. properties by March with a vote

by shareholders expected on March .

Under the agreement Charter Hall will join

the consortium with an initial investment

o % and will continue to manage CQO

on an unlisted basis.

In the rst hal o LaSalle Investment

Management was an active investor on

behal OF its Asia Opportunity Fund No. .Investments included the acquisition o

Novotel Melbourne on Collins Street and the

Australia on Collins retail complex or

and equity investmements in residential

development Joint Ventures in Sydney with

Toga Group, Leighton Properties and

Australand.

Private equity frms

have increased theirexposure in Austrliaand are typicallyseeking an IRR onequity invested o

20% or more.

COLLIERS INTERNATIONAL | P.

RESEARCH & FORECAST REPORT | FIRST HALF 2012 | NATIONAL


3/8

OVERVIEW

Sovereign debt issues in Europe and a slow recovery in the United States, as well as ination and

slowing growth concrens in China have caused uncertainty in relation to the strength o the globaleconomic recovery. Negative sentiment has owed through to the domestic economy with a

dampening efect on sectors outside mining and resources. Despite this, the undamentals o the

Australian economy remain sound. A key indicator o the strength is the Australian labour market

with unemployment currently at .%, compared with .% in the UK and .% in the US.

FOREIGN EXCHANGE/CURRENCY

Ongoing global economic uncertainty saw the Australian Dollar reach a record high in late July

, trading at US. cents. The Australian dollar has been volatile over the past ew months

and is currently trading at around US cents, ater slipping below parity to US cents in the

last week o November .

INTEREST RATES

The Reserve Bank o Australia (RBA) decided to keep the o cial cash rate on hold at .%, at

its monthly board meeting in February . The reasons behind the RBAs decision were recent

signs o underlying strength in some major economies, including the United States and China, also

the Australian economy appeared to be growing at close to trend. The board stated that ination

has declined, as the large rises in ood prices resulting rom the oods a year ago have been

unwinding and is expected to all urther during the rst hal o . In its monetary policy

statement, the RBA noted that interest rates or borrowers have declined to be close to their

medium-term average, as a result o the actions at the Boards previous two meetings and

looking orward should demand conditions weaken materially, the ination outlook would provide

scope or easier monetary policy.

DEBT

The risk and uncertainty associated with sovereign debt and economic growth issues across a

number Europe and the US has led to a ight to quality rom investors since the start o the global

nancial crisis in . This saw the spread between AAA and BBB debt yields peak in December

at nearly .% and has remained around basis points since, this is in stark comparison

to a basis point diference between and . This yield spread has begun to slowly rise

over Q and Q and nished the year .%. The ight to quality to AAA investments has also

seen a return o positive spreads between average Prime grade o ce and AAA debt and sits at

.% as o December .

Economic Update(data to be updated in Jan )

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

Jan-02

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

BorrowingRateandYield

Spread AAA Debt National Average Prime Grade Office Yield

PRIME GRADE OFFICE YIELD VS. AAA DEBT RATE

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Dec-00

Jun-01

Dec-01

Jun-02

Dec-02

Jun-03

Dec-03

Jun-04

Dec-04

Jun-05

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Foreign

CurrencyperAustralian

Dollar SGD

USD

Euro

USD SGD Euro

AUSTRALIAN DOLLAR EXCHANGE RATES

Source: RBA / Colliers International Source: RBA / Colliers International


COLLIERS INTERNATIONAL | P. 3


4/8

Retail

Oce

Hotel

Industrial

$Millions

,

,

,

,

,

,

,

,

By Property Sector

OFFICE MARKET DOMINATES

The o ce market continued to be the

avoured property sector or oreign buyersduring the second hal o , making up

.% o all ofshore acquisitions within

Australia.

A total o o ce properties were purchased

by oreign capital with a value o . billion,

during the six month period.

Declining vacancy rates, stable tenant demand

combined with rental growth in some Prime

grade o ce markets have been the main

driver behind these acquisitions.

Prime grade yields, o between .% and

.%, compared with .% to .% inLondon and New York o ce markets, have

increased competition or quality assets in

Australias o ce market.

The largest o ce asset to sell to a oreign

buyer in the second hal o was

Suncorp Place George Street,

Sydney. This property sold to Memocorp

Australia or million in July ,

on a tight reversionary yield o .%. It is

understood that the capital or the acquisition

is underpinned through the Singaporean

owner o the Australian business.

HIGH RETURNS DRIVE INDUSTRIAL

Acquisitions by oreign buyers o industrial

assets continued to remain strong during the

second hal o with industrial assets

valued at circa million transacting

during the six month period.

The main driver behind these acquisitions

was the attraction o high yielding, quality

assets with a lack o new supply providing

uture growth prospects or Prime grade

markets.

The largest deal to take place in

was the purchase by Aviva Investors o

the Hoxton Distribution Park rom Mirvac.

Aviva paid . million or a % stake in

the property representing a yield o .%.

RETAIL ATTRACTS INVESTORS

Foreign capital ows into the retail sector

made up % o all ofshore acquisitions

during the second hal o with six

assets valued at circa million

transacting.

Globally competitive yields, low volatility

o returns and lower vacancy rates then

comparable global centres are currently

attracting capital to the Australian retailmarket.

The largest oreign retail property purchase

in was the % stake in the Northland

Shopping Centre by CPP Investment Board

valued at million. This super regional

centre was an attractive buy due to its large

catchment area, diverse tenant prole and

high oot tra c this is reected in the tight

.% yield attributed to this sale.

CBD HOTELS TARGETED

Hotels in Australia have slowly begun to

attract urther oreign investment making

up .% o ofshore property purchases with

our assets selling in the second hal o .

CBD, business driven hotel assets have been

the major targets or buyers, as the leisure

and resort sector assets continue to present

risks due to the slowdown o overseas

tourists.

The Novotel Melbourne on Collins was the

largest sale in , purchased by LaSalle

Investment Management or million

in June .

Hoxton Distribution Park, Hoxton ParkMirvac sold a % interest in this asset to AvivaInvestors in September . The sale price was. million and represented a yield o .%.

VALUE OF CAPITAL FLOWS INTO AUSTRALIA BY SECTOR




5/8

United State

Singapore

South Arica

Malaysia

UK

Germany

Hong Kong

China

Sweden

United States%

China %Hong Kong % Sweden %

Germany %

UK %

Malaysia%

South Arica

%

Singapore%

By Country of Origin

ASIA CONTINUES TO DRIVE FLOWS

Capital inows rom Asia accounted or %

o total oreign investment in Australianproperty during the second hal o .

The comparative strength o the Australian

economy combined with the ongoing

economic uncertainty in Europe and the US

has seen Asian investor re-direct unds that

would normally be bound or these markets.

Buyers rom Singapore have been driving

capital ows rom Asia, making up % o

total oreign capital investment in Australia

over the second hal o .

Tightly held property markets in Asia, such

as Hong Kong, currently provide investorsyields o between .% and .% which

urther enhances the yield prole o property

sectors in Australia.

NORTH AMERICA

North American investors have ound

preerence in directing capital to Australias

o ce and retail sectors.

Capital rom this region made up % o

oreign investment during the second hal o

with circa million being invested

during the period. The majority o this investment occurred via

the purchase o Valad Property Group by

Blackstone this accounted or properties

worth circa million.

Slow growth and ongoing uncertainty in the

US economic recovery has led to North

American institutions moving capital ofshore

to seek higher, less volatile returns and

growth prospects.

EUROPEAN INVESTORS REMAIN

SUBDUED

The sovereign debt crisis which has enguledthe European economy over the past

months has limited investment and capital

ows rom European institutions.

Despite this, Australia saw circa million

o oreign capital being poured into direct

property rom Europe in the second hal

o .

This accounted or % o all oreign capital

ows into the Australian property market

during the period.

Most o the purchases have been long term,

yield driven acquisitions with Europeanbuyers looking or assets with long, secure

leases with strong convents.

MIDDLE EAST & AFRICAN CAPITAL

BEGINS TO EMERGE

Middle Eastern and Arican investors were

limited to one buyer in comprising %

o total global capital ows into Australia.

This buyer was Growthpoint Properties rom

South Arica who purchased eight assets

during the second hal o , valued at

circa .

1 Alfred Street, SydneyThis building was part o the Valad Property Groupportolio which was acquired by Blackstone. Theproperty is currently an A grade o ce buildinghowever, a DA is currently being assessed orthe development o a high end luxury residentialapartment building.

CAPITAL FLOWS INTO AUSTRALIA BY COUNTRY OF ORIGIN





6/8

By Capital Destination

SYDNEY SEE MAJOR INCREASE IN

OFFICE INVESTMENT

The Sydney market accounted or % o alloreign capital ows during the second hal

o , valued at circa . billion.

O ce and industrial assets were the main

ocus o oreign capital ows in the Sydney

market over the second hal o .

Nine o ce assets valued at bi llion and ve

industrial properties worth million were

purchased by ofshore buyers in Sydney over

the past six months.

A lack o Prime grade industrial and o ce

stock in Sydney has led to rental growth or

quality assets over the past six months,leading to increased capital ows into these

sectors rom risk adverse investors.

MELBOURNE ATTRACTS RETAIL FLOWS

Melbourne attracted % o all ofshore

capital ows into Australia during the second

hal o .

The six month period saw more than

million worth o property across

transactions taking place in Melbourne during

the period.

The majority o sales were o ce assetsworth million across seven

transactions.

The stability and growth prospects o

Melbournes o ce and retail markets

combined with declining vacancy rates and

orecast rental growth have all been drivers

behind the push rom overseas buyers into

the market.

BRISBANE INDUSTRIAL MARKET

Total ofshore capital ows into the Brisbane

market increased by .% rom millionin the rst hal to million in the

second hal o .

One o the largest transactions was the

purchase o two o ce assets by Growthpoint

Properties rom Australian Property Growth

Fund. The rst property was Ann Street

which was bought or million while the

second was CB & CB which were sold or

. million.

PERTH AND ADELAIDE OFFICE SALES

O ce assets were the main ocal point or

oreign buyers in both the Perth and Adelaide

over the course o .

The resources and mining boom has seen

vacancy rates decline in the Perth market,

driving rental growth and in turn interest

rom investors.

The sale o Bankwest Tower at St

Georges Terrace, in the rst hal o , or

million to Brookeld O ce Properties

was the second largest oreign direct

property investment transaction in Australia

during .

Adelaide saw a total o . million in

oreign capital ows during the second hal

o across two transactions.

The largest being the sale o Lafer Drive,

Bedord Park or . million to

Growthpoint Properties.

Southern Cross West Tower, 111-129 BourkeStreet, MelbourneA % interest in this storey A grade o cebuilding was bought by Brookeld Prime PropertyFund or million in July .

Sydney

Melbour

Brisban

Gold Co

Adelaid

Other

Sydney%

Adelaide%

Other%Gold Coast

%

Brisbane%

Melbourne%

DESTINATION OF FOREIGN CAPITAL FLOWS INTO AUSTRALIA





7/8

By Buyer Type

PENSION FUNDS INCREASE

INVESTMENT

saw an increase in ofshore pensionunds investing in Australian property

markets, accounting or a number direct

and indirect property acquisitions during

this period.

The includes the likes o the Canada Pension

Plan Investment Board (CPP) and Public

Sector Pension Investment Board o Canada.

The basis or these or investment by

pension unds are yield driven, low risk,

Prime grade assets with secure, long term

tenants providing return certainty or their

investment.

REOCS CONTINUE TO INVEST

Ofshore Real Estate Operating Companies

(REOC) have increased their investments

over the past months making up % o

oreign capital inows into the Australian

property market.

The most active being Brookeld Asset

Management who has invested approximately

million over the past months.

Growthpoint Properties has also been active

in the purchase o industrial portolios andassets within Australia over the past year.

These companies are driven by value add

and capital growth investment opportunities,

seeking to buy opportunistically to capitalise

on short to medium term capital returns.

INVESTMENT MANAGERS

LaSalle and Heitman were two o the most

active ofshore Investment Managers in theAustralian market over the past months

acquiring circa million worth o

property or their respective unds and

investors.

Foreign investment managers made up %

o capital inows into Australian property in

, an increase o % on .

The basis or investment rom these buyers

vary depending on their purchase mandate

and the return criteria o the individual unds

they manage. For example currently

European managers such as RREEF aredriven by long term, secure, yield driven

investments or their open ended unds.

The second hal o also saw the private

equity und Blackstone acquire Valad property

group. The acquisition consisted o more than

properties valued at circa million.

DEVELOPERS AND OWNER OPERATORS

Foreign capital has also entered Australia

via developer and owner operators during

the past months making up % o capital,

worth circa million.

The majority o this capital has been directed

to the hotel and residential development

sectors with such owner/developers as HNA

Group and Kirsh Group.

333 Ann Street, BrisbaneThis A grade building was purchased byGrowthpoint Properties, rom South Arica, inDecember or million on an equivalentreversionary yield o .%.

Pension Fun

REOC

InvestmentManager

REIT

Corporate/Insurance

Equity Fund%

Bank/Finance %

Private Investor%

Pension Fund%

REOC %

REIT% InvestmentManager %

SovereignWealth Fund %

Develop/Owner/Operator %

Corporate/Insurance %

CAPITAL FLOWS INTO AUSTRALIA BY CAPITAL TYPE





8/8

INVESTMENT SALES

Address Suburb StateSaleDate*

Sale Price($AUS) Yield**

Capital

Value($/m2)

Purchaser

Of ce

Suncorp

PlaceSydney NSW Aug-11 $395,000,000 6.40% $16,253 Memocorp Australia

8-12 Chiey

SqSydney NSW Jul-11 $308,800,000 6.65% $6,606 K-Reit Asia

Southern

Cross West

Tower

Melbourne VIC Jul-11 $240,000,000 7.17% $5,195Brookeld O ce

Properties

Coca-Cola

PlaceSydney NSW Jul-11 $228,000,000 7.25% $8,070

Pramerica Real

Estate International

StockExchange

Centre

Sydney NSW Dec-11 $185,000,000 7.25% $7,347 RREEF

uture

Aurecon HQMelbourne VIC Oct-11 $120,000,000 7.00% CIMB Group

Industrial

Hoxton

Distribution

Park

Sydney NSW Sep-11 $194,800,000 7.50% Aviva

iseek Data

CentreBrisbane QLD Jul-11 $62,857,143

Securus Data

Property Fund

219-247

Pacic

Highway

Sydney NSW Dec-11 $60,000,000 7.50%

Securus Data

Property

Fund JV Keppel T&T

3 Summit Rd Melbourne VIC Jul-11 $11,843,000 Fujitsu

Retail

651 Old

Coast RdFalcon WA Jul-11 $15,200,000 Kao Group

Hotel

316 Port

Douglas Rd

Port

DouglasQLD Jul-11 $8,500,000 $43,814

Wyndham

International

270 Flinders

LnMelbourne VIC Sep-11 $31,000,000 $173,184 Michael Kum

Recent Market Transaction Activity

* Sale Date is exchange date**Yields quoted are equivalent reversionary yields

Source: Colliers International Research

OutlookColliers International expects that disposal activity o non-perorming loans rom both oreign and

domestic banks will increase over the course o as credit and debt markets remain tight.

COLLIERS INTERNATIONAL

Level , Grosvenor Place

George Street

Sydney, NSW,

TEL

FAX

RESEARCHER

Mathew Tiller

Manager | Research

TEL

FAX

Colliers International does not give any warranty in

relation to the accuracy o the inormation contained in

this report. I you intend to rely upon the inormation

contained herein, you must take note that the

inormation, gures and projections have been provided

by various sources and have not been veried by us.

We have no belie one way or the other in relation to the

accuracy o such inormation, gures and projections.

Colliers International will not be liable or any loss or

damage resulting rom any statement, gure, calculation

or any other inormation that you rely upon that is

contained in the material. Colliers International .

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global capital flows first half 2012

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