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With commercial property being one of the most popular asset classes attracting overseas investment, some are worried it could be the first to be destabilised by current financial uncertainty overseas.
During the quarter to December 2022, commercial property investment was the largest asset class requiring approval from the Foreign Investment Review Board. With global economies waving in the face of banking crises, many in the industry are wondering where that leaves the commercial property sector.
Vanessa Rader, Ray White Commercial’s head of research, points out that instability in the US is perhaps the greatest threat to the commercial sector.
“The United States continued to be the most active source of investment capital into Australia, growing 45.2 per cent compared to the prior quarter,” she noted.
But even with that substantial leap, the US has long been the largest investor of commercial property in Australia, purchasing $118.9 billion last financial year up from $57 billion in 2020–21.
Next in line is Canada, where investors look to Australian shores for quality, trophy CBD assets. North American, as well as European investors will be most in doubt as banking issues play out.
“Europe has been reducing their investment into Australia more recently which is expected to continue during this year as the banking crisis unfolds,” Ms Rader noted. “The United Kingdom has only recorded $700 million in [Australian] sales during the December quarter, with full-year results anticipated well behind the $6.5 billion recorded in 2021–22”.
Singaporean investors, however, have been a strong force in the field, increasing activity over the past 18 months and spending $10 billion in the September and December quarters after securing $24 billion in sales during the prior financial year.
Unlike in the residential market, China and Hong Kong have been losing ground in their share of the commercial market owned by foreign entities. Even so, hotel assets remain a hot ticket among Chinese buyers.
South Korean investors, meanwhile, have been increasing their Australian market share and are on track to meet the $4.5 billion they put into commercial property across all asset classes in 2021–22, spending $4.2 billion this financial year so far.
It’s investors from Asia who could potentially pick up some slack left by wavering North American and European investors, according to Ms Rader.
“These markets are anticipated to continue to seek out investment opportunities this year and may favour the Australian market to the North American and European markets given banking uncertainty,” she commented.
That being said, economists and financial industry insiders have said there’s not yet cause to sound the alarm.
ANZ CEO Shayne Elliott has said it’s “way too early” to call a global financial crisis.
“I mean, it’s a crisis for some, obviously, but is it a financial crisis in the typical sense? Who knows? Does it have the potential to be one? Yes, it does have the potential to be one,” Mr Elliott said in a recent interview, as reported by REB’s sister brand, InvestorDaily.
For those having flashbacks to 2008, he noted the circumstances are very different.
“When you get the microscope out, the causes and what’s going on here are really, really different than the GFC”.
“GFC was fundamentally a crisis around the quality of assets and the loans that banks make, and that’s not what the risk is here. This is a different issue. This is really to do with the global war on inflation and how central banks are raising rates very quickly in order to combat that, and that has casualties,” Mr Elliott said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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