Melbourne named top real estate investment market

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Melbourne was the best prospect in the Asia Pacific region for both investment and development, outranking both Singapore and Sydney, according to the “Emerging Trends in Real Estate Asia Pacific 2019” report.

Melbourne’s improved stature is associated with the fact that its office supply pipeline is more constricted than Sydney.

Rents in both of these capitals, though, were predicted to track higher considering the fast-falling vacancies in these places.

Rental growth in both cities has been “phenomenal” so far this year. Yields were slightly down, but are quite high in terms of international standards at nearly 4.5% for prime office and retail and 5.5% for good industrial space.

Prices are more reasonable in Melbourne, reflecting the shift in market standings.  Office vacancies, meanwhile, are low in both cities at around 4%.

The report further highlighted that competition among investors to place capital is a dominant market behaviour in the Asia Pacific region. This practice continues to dictate how investors approach the sourcing of assets, despite signs the market may currently be approaching a cyclical top.

Value-add plays specifically become a focus, as owners plan to upgrade assets by providing more flexibility, better user experience, and improvements leveraging design and technology functions.

Tony Massaro, partner, PwC Real Estate Advisory, confirmed that value-add still remains the target of choice for many investors in Australia.

"The sheer weight of institutional capital, both domestic and foreign, has pushed yields down further in core markets, with most investors reporting that finding assets to purchase continues to be difficult," he said.

It is also important to note the identified trends in the Asia Pacific region. These include investments in logistics facilities, co-living as a template for future housing, and capital flows remaining strong.

“The survey results for this year’s ‘Emerging Trends in Real Estate Asia Pacific’ report shows that many investors in the region are looking to Australia’s largest cities for investment opportunities,” said Susan McDonald, Urban Land Institute Australia chair, and head of retail for Australia.

McDonald added that with the number of investable assets significantly lower in Melbourne and Sydney than in Japan, strong competition to place capital in the first two cities is apparent, especially with a lot of international players looking to buy.

The “Emerging Trends” report, which is jointly published by ULI and PwC, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area.

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