Early indicators of new deals have seen a strong start to 2018, painting a rosy picture for the Australian deal market, particularly in the real estate space. Market growth shows very positive signs, with businesses looking to mergers & acquisitions as a means of growth. With recent tax cuts for businesses announced in the Federal Budget, we can only expect an increase in deals, particularly mergers and acquisitions.
This healthy start to deals in 2018, particularly across the property sector, is attributed to the movements in the market up until this point. Real estate new deal commencement increased 20% over 2017, with an increase of 42% in Q4 compared to that of Q4 2016, indicating strong momentum in this space as we move into 2018.
Real estate deals growing
Based on activity seen in deals recently completed for the quarter, our indicators show interest in Australian real estate was significant in the first quarter of 2018, Singapore representing 50% of total offshore interest in the sector.
Investors are looking to ‘less travelled’ areas of real estate, where there is less competition and better return potential. They are looking beyond previous misgivings in niche areas of real estate investment, and seeing only the high returns and long-term stability of the space. Not only do these spaces somewhat guarantee profit, they also diversify investment portfolios, so all eggs aren’t in one basket.
Australia’s consistent economic growth, world-class infrastructure, and both geographic location and trade to Asia-Pacific, make it a safe and attractive place to invest. The percentage of total mergers and acquisitions in the real estate space has grown over time, a mere 14 percent 2 years ago, growing to 25 percent last quarter. Considering Australia’s residential real estate market is slowing down, our report indicates commercial real estate is heating up.
Investor demand from Singapore, not China
The huge leap from Singapore to secure investment in real estate in Australia grew from 24 percent in 2017, to a whopping 50 percent this year. Investor demand for real estate is being motivated by the objective of securing income streams and asset class diversification.
Singapore’s real estate market is seeing the tail end of a two-year slump, and the outlook is positive. The government is actively encouraging the integration of new technologies into real estate, and capital is flowing into the sector. Singapore is highly developed and wealthy, and investing ahead of the curve when its comes to innovation. Singapore has several multi-million dollar deals under its belt, and several more in the pipeline. We expect to continue seeing the Asian nation go from strength to strength in the real estate market.
Where the investment is taking place
Other than commercial real estate investment, 2018 is the year to start looking at emerging property sectors to diversify and seek higher profitability. The following sectors are seeing a surge in investment.
● Student and senior housing — student housing sector can offer better returns than other commercial or residential housing, meaning higher yields and income stability for investors.
● Flexible working spaces — the popularity of flexible working spaces has grown, and investors are starting to pay attention.
● Data centres — Singapore’s bid to focus on the future has led to a surge of interest in data centre real estate, both at home and offshore. The sector has becomemore established and both perceived and actual risk has diminished, resulting in more investors willing to take the leap.
The future of deals
Through our data collected from deals recently completed over the quarter, we know that there has been increased activity and interest into the Australian property market from Asia overall. Particularly Singapore, which is looking ahead. Their movement into these niche real estate sectors aligns with their interest in transforming their own property market, cementing their position as a globally recognised technology hub and leading the way forward in the digital economy.
Australia’s deal market will continue to heat up throughout 2018, and we can’t wait to see what happen.