Australian Commercial Real Estate: Defensive asset, smart investment
The Australian commercial real estate (CRE) market is attractive for a number of reasons. Not only is it a defensive asset class that offers a wealth of benefits in contrast to overseas markets, but regulation around lending also creates a unique opportunity – one that favours partners like EFI Asia who have on-the-ground experience and established relationships with lenders, top tier developers and quality sponsors.
Here’s why we are so interested in Australian CRE.
An unstoppable force
It’s easy to look at COVID-enforced lockdowns and the rise of remote work as being detrimental to sub-sectors of the CRE industry. After all, if employees aren’t spending time in physical CBD offices, that will ultimately lead to higher vacancy rates and lower returns for investors.
Not according to the data.
CBRE’s latest Australia Real Estate Market Outlook report reveals that despite 2020 sales volumes being lower than the year previous, “Pricing levels are at historic highs for office and industrial assets due to the low cost of debt and strong investor appetite.”
Furthermore, there’s been a renewed interest by investors to reweight their portfolios to include more logistics assets. The industrial sub-sector of CRE is therefore experiencing a “phase of unprecedented demand with e-commerce helping to drive growth across the Australian market.”
If a global pandemic can’t stop a stellar CRE market, it’s no wonder both local and foreign investors are keen to add this defensive asset to their portfolio – in fact, foreign direct investment into Australian real estate activities has grown significantly year-on-year, to hit $120bn in 2020, almost triple the value of the country’s entire commercial building activity ($43.3bn) as of fiscal 2019.
It’s a unique lending situation
Unlike standard residential real estate, where everyday people approach traditional lenders to borrow and purchase a home, the CRE landscape is more complex in Australia. A slew of regulatory restrictions around the middle of the last decade saw the big banks pull away from construction lending. That paved the way for private financiers, family offices and non-bank lenders to fill a critical gap, especially considering the construction boom that Australia has been experiencing in its capital cities in recent years.
This is good news for investors, as the construction boom shows no signs of abating. According to some experts, the CRE lending space is expected to explode as well, with $50bn in non-bank lending for construction projects predicted by 2024. Unsurprisingly, foreign investors are already chomping at the bit for a piece of the pie.
One of the key decisions is choosing the right lender. We’ve been investing in Australian CRE markets since the lending landscape changed in 2016, and what is clear is that the fundamentals of this asset class have only improved with the right risk management on a deal-by-deal basis. That means established private financiers, non-bank lenders and family offices can take advantage of the gap in the market that is still prevalent today.
With years of experience in this space, we have built robust relationships with the most important connections on the ground. Not only do we have a firm understanding of the CRE environment and the effects of external factors like COVID-19’s disruption, but we are knowledgeable about the planning process with councils, and we partner with developers throughout a construction project’s lifecycle. This provides greater control and risk management, giving investors peace of mind that their money is in the right hands.
To learn more about the Australian CRE market and why it’s an intelligent strategy to allocate to in your portfolio, reach out to one of our experts: