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Issue Date: Mon 27-May-2019
Article Source: https://www.smh.com.au/business/companies/investors-seeking-out-safe-haven-bricks-and...

Investors seeking out safe haven bricks and mortar

A tsunami of money is flowing into the Australian investment property markets as investors seek out safe-haven higher yielding bricks and mortar, with an emphasis on the strong office and industrial sectors.

Analysts have said close to $1 billion of cash has come into the market in the past few months form international and domestic investors.

Australia real estate investment trusts (A-REITs) outperformed the broader ASX 200 in March and remain strong, up 6.03 per cent compared to the ASX 200 up 0.19 per cent and also outperformed other major global REIT indices in the month.

Demand for office space is attracting investors.

According to Peter Zuk, senior analyst at Shaw and Partners, globally, REITs benefited in March from expectations of low global growth and tighter bond yields.

"Locally, there was mixed bag of performance, with even many of the retail-exposed REITs finding some investor support," Mr Zuk said.

"The sector is looking fully priced, with a forecast total shareholder return of 0.7 per cent, including a 4.7 per cent distribution per security yield, as at March 31, implying expectations of negative capital returns."

But Mr Zuk said, the US and Australian yield curves shifted lower in the month and continue to show market expectations of shorter term interest rate cuts.

"Against this backdrop and market concern about a slowdown in global growth, we expect REITs should continue to be relatively well supported," Mr Zuk said.

Fund managers have said there has been a large swell of overseas money coming into both the listed and unlisted sector.

One of the attractions is the solid fundamentals of the office sector. While there is some sub-leasing space creeping back to the Sydney market, demand remains strong, according to analysts.

UBS analysts said growth in white collar employment was robust, which reflects strong growth in the
services sector and business expansion and points to continued demand for office space.

"Leasing interest in both markets is healthy but rents were also supported by stock withdrawals
and low levels of completions which resulted in a dearth of options for tenants. Prime net effective rents are expected to continue rising in 2019, albeit at a much more moderate pace than before," UBS analysts said.

"Other factors that will remain supportive of the economy include government spending and business investment."

According to Ian Hetherington, national head, capital transactions at Savills Australia, predictions of the yield compression cycle coming to a halt in Sydney CBD are still to eventuate, with average A-grade market yields falling 20 basis points in the 12 months to March 2019, with current sales campaigns suggesting further falls over the remainder of the year.

"Investors are increasingly identifying Sydney’s fringe office markets as viable alternative investment destinations, particularly as these fringe markets benefit from the same demand drivers as the Sydney CBD, but at a considerable discount," Mr Hetherington said.

The investment side of the ledger has also attracted investment cash.

According to James Girvan, director of capital transactions at Savills Australia, investor interest in Melbourne remained strong, as a result of the capital value discount to Sydney in conjunction with strong demand drivers.

"Whereas average A-grade capital values in the Sydney CBD were recorded at about $20,300 per square metre, comparable assets in the Melbourne CBD had average capital values of $11,300 per square metre," Mr Girvan said.

"The greatest capital value growth across all CBD markets nationally, was recorded in the Melbourne CBD, with average A-grade capital values increasing 13 per cent in the 12 months to March 2019. Most notably, this is based on near record-low transaction levels in the 12-month period to March 2019."



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