Nick Browne, director of alternative assets management firm Jameson Capital, says offshore investors are very interested in Australian real estate due to the nation’s strong response to contain Covid, bipartisan political and economic support for the economy, strong rule of law and investor-friendly environment relative to other markets in the region.
“Overseas investors are an important part of the mix thanks to lack of funding alternatives in a market with limited capital market sophistication,” he said.
“Biases from domestic investors also tend to concentrate local capital in specific markets, creating excellent opportunities for offshore investors on a risk adjusted basis.”
Browne says that next year, investors will remain focused on the core commercial sectors of office industrial and retail, with a gradual re-weighting away from retail to industrial and logistics.
“These are the largest and most liquid sectors with the greatest amount of deal flow and therefore attract the most amount of capital,” he said.
“Some investors are also starting to realise there is substantial value in non-traditional sectors such as student accommodation and build-to-rent that have become very popular over the past decade.
“Some of these non-core sectors are extremely large asset classes in Europe and North America and offshore investors see the growth potential for these markets to expand over the coming decade in Australia.”
Browne also notes more specialised opportunities that generate high returns don’t tend to be popular with larger capital allocators that lack in-house expertise.
But they are a focus for regional fund managers, private banks, multi-managers and offshore family offices.
When it comes to asset values, offshore investors, like all investors, seek relative value to other investment opportunities they are considering.
“If they do not believe the Australian real estate market is priced competitively relative to other markets in the region, they won’t be deploying capital in Australia.”
Jameson also doesn’t expect foreign investment into Australia to create price distortions in the market.
“Changes in price that do not reflect underlying market fundamentals can be the result of investors allocating capital for reasons other than seeking purely financial returns.
“This was most recently seen through the middle of last decade where specific groups of offshore investors sought to move capital from their home market into Australia, which resulted in price growth beyond that which could be supported by domestic investors.
“The implementation of capital controls in some of those markets has dramatically reduced the velocity of these inflows to Australia.”
While nothing’s certain in a topsy turvy world, it will be interesting to see which assets pique offshore investor interest this year.
