A flurry of deals late in the quarter ensured that although the volume of investment in Australian commercial real was down quarter-on-quarter (q-o-q), it was up year-on-year (y-o-y). In total, $4.8bn was invested in Q1 2014, down 25% on the $6.4bn invested over Q4 2013, but 10% up on Q1 2013.
Private Vehicles, namely unlisted funds, returned to net purchasing for the first time since Q1 2013, committing $681m over the quarter. In net terms, A-REITS showed comparatively low investment activity at just $70m. However, they acted as vendors in a range of smaller transactions, divesting of assets not aligned to their strategy.
Asia Pacific investors continued to dominate overseas investment activity accounting for the vast majority (93%) of the quarterly volume. Their focus remained on the larger and more liquid markets of New South Wales and Victoria (Map 1), with particular focus on office assets. Equally, with abundant capital still circling Australia, domestic investors also focussed on the same markets to readily deploy capital.
Looking forwards, it is likely that investors will increasingly target a variety of assets types. Although there will remain strong demand for high-quality prime assets and any that come on the market will be hotly contested, investors will continue to move up the risk curve in order to deploy capital.
Notwithstanding recent announcements by the Reserve Bank of Australia, we maintain our view that there is room for further yield compression in the prime market, given that spreads are still above historical norms. It is also likely that spreads to the upper end of the non-prime market will also narrow with the upturn in investor interest.
Source : DTZ (Groupe UGL)