CAPITAL MARKETS 2021 - Colliers International
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CAPITAL
ANZ
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
MARKETS2021 OUTLOOK
COLLIERS INTERNATIONAL
COLLIERS INTERNATIONAL
AUSTRALIA & NEW ZEALAND
1 AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
In Australia, real estate transactions were down 58 per cent, So far in 2020, the assets that have traded have shown
The pandemic has had deep
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
with $10.96 billion of assets traded during the first three minimal movement on yield metrics, reflecting significant
economic ramifications across the quarters of 2020. The office and the retail sectors were the pent-up capital seeking placement and the lack of stock
globe during 2020. This economic most impacted, with volumes down 75 per cent and 29 per available for sale. However, the flight to quality thematic is
cent respectively. The industrial and logistic sector was more beginning to play out as investors chase strong covenanted
slow-down is evident through the resilient, supported by strong fundamentals and an increasing assets with long WALEs. Most of the major domestic
fall in transaction levels within reliance on logistics networks, with transaction volumes up 6 institutional investors are well capitalised with several
per cent compared to the same period last year. undertaking capital raisings to shore up their balance sheets.
commercial real estate. Gearing is much lower than during the GFC which gives
QLD (-67 per cent), NSW (-66 per cent), WA (-38 per cent), many institutional owners the ability to ride through the initial
Transaction levels have decreased significantly during the first three VIC (-29 per cent) and SA (-7 per cent). pandemic period. In addition, most of the reporting period has
quarters of the year. While the retail and hotel sectors were strongly
suggested that yields have held or tightened in the office and
impacted, the office sector has recalibrated with a focus on occupancy However, despite travel restrictions, offshore investors
industrial markets however the retail sector has seen a write
and the industrial sector has shown resilience. Overall, the high continued to see value in the Australian market and capital
down in book value for many of the major retail assets and
degree of uncertainty caused both vendors and purchasers to pause inflow remained strong, representing 32 per cent of deal
cap rates have softened by up to 26 basis points, depending
investment decisions until the effects of the pandemic on occupancy volumes to date. Foreign purchasers are also seeing a currency
on asset, between December 2019 and June 2020.
and income levels are better understood. Institutions and investors advantage, resulting in significant offshore capital looking for
decided to hold divestment mandates as they wait for evidence to opportunities in Australia.
analyse the impact of COVID-19 on investment metrics.
According to Real Capital Analytics, global real estate transactions are AT THE BEGINNING OF THE PANDEMIC, THE FOREIGN
INVESTMENT REVIEW BOARD IMPLEMENTED A
down 40 per cent in the first three quarters of the year compared to AUSTRALIAN
TRANSACTIONS TEMPORARY RESPONSE TO COVID-19.
-58%
the same period last year. The decline is more pronounced in the Asia This change has lowered the threshold for foreign investment
Pacific region with a 42 per cent decrease in transaction volumes to zero dollars meaning all foreign investment and leases to
over the same period. Asia was the first continent to be hit by the foreign companies would require FIRB approval. To allow for
the reviewing of all applications the timeframe to review has
pandemic and consequently the first region to establish lockdown
increased from 30 days up to six months. There have been
policies, affecting transaction volumes early on this year. some administrative changes made to be able to streamline
the application process and our experience is that the review
GLOBAL ASIA PACIFIC process is much faster than six months.
TRANSACTIONS TRANSACTIONS
-40% -42%
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Introduction.
2 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & Teams
AT THE FOREFRONT OF THE REAL
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
ESTATE INDUSTRY, WE UNDERSTAND
THE DEMAND FOR RELIABLE AND IN-DEPTH DATA INSIGHTS DETAILED TRANSACTIONS
ACCURATE DATA IS MORE PREVALENT Granular datasets covering Our experienced research team Individual reporting
THAN EVER. historical and forecast data will help you understand quarterly of major transactions.
with over 2,000 datapoints changes, as well as broader themes
updated quarterly. behind each sector and market.
Our enterprising technology, Colliers
Edge, offers comprehensive property
data that enables you to delve deeper
into the Australian property market,
using data to become more informed
MAXIMISE
and deliver enduring value.
Colliers Edge is a data subscription
service developed by our in-house
THE POTENTIAL
research experts, who collaborate with
our National network of operators to
drive exceptional results.
SED UT PERSPICIATIS
OF DATA
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natus error sit voluptatem acium.
JOANNE HENDERSON
COLLIERS INTERNATIONAL
Director | Research
+61 410 391 093
Colliers Edge.
Accelerating success. joanne.henderson@colliers.com
colliers.com.au/colliersedge
3 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & Teams
To better understand the impact of a global economic crisis The latest REITs reporting season highlights the strong
Office fundamentals remain strong.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
on the investment market, we looked at the most recent crisis fundamentals and optimistic outlook of the office sector.
The COVID-19 pandemic initally halted capital investments into the being the GFC and sought guidance and comparison.
Rent collections reported by the major REITs are well above
office sector as a reaction to domestic restrictions. With the vast
In the lead up to the GFC in September 2008, capital values 90 per cent across their office portfolio.
majority of office workers required to work from home, this left the
grew significantly, domestic institutional investors had higher
market questioning the future of flexible working and the relevance of While there has been some write downs in values, it appears
leverage and the AUD was at near parity with the USD. Yield
corporate offices. to come mostly from below the line adjustments to protect
compression was substantial and peak yields fell below the
bond rate. income. Most office portfolios have seen no change in cap
The uncertainty around future occupancy levels, together with strict
rates between December 2019 and June 2020.
domestic and international travel restrictions halted a majority of
With the combination of all of these factors it became evident
capital investment flows. Many current transactions were put on Transaction volumes have fallen during the first half of year.
the risk was not adequately priced and hence yields softened
hold until there is more clarity in the leasing market and future As we are now seeing an increase in activity, we expect to
that dramatically in the office market when the GFC hit.
performance. record more transactions during the final quarter of the year.
The economic impacts of the COVID-19 crisis will be far Offshore groups are expressing a strong interest to invest
After a strong year in 2019 with $25.0 billion of sales, a sharp drop
deeper and will be felt for a longer period. in the Australian market, and while travel restrictions are
was recorded during the first three quarters of 2020, with sales
still in place, onshore managers are able to assist with the
volumes falling to $4.3 billion. Key differences with the GFC are the RBA interest rate is at acquisition process.
a record low, the AUD well below the USD and institutions
The Australian’s office market is facing headwinds with a focus
are far less leveraged. The spread to the risk-free rate
on having secure short-term cashflow. Key metrics such as net
is above the long-term average and therefore the risk is
absorption and vacancy rates are forecast to move, reflective of
adequately priced. THE ‘FLIGHT TO QUALITY’ SHIFT FROM CAPITAL.
the current clouded environment. Companies are still gauging the
effects of the pandemic on their business performance before making When the market is softer, prime grade assets anchored by
Foreign purchasers are also seeing a currency advantage secure covenants usualy benefit from a ‘flight to quality’. The
decisions on head count and office requirements. and are showing a strong interest in pursuing acquisition value of these assets are holding, with potential for further yield
opportunities in the country. compression expected through the cycle.
Incentives are likely to increase as institutional landlords want to
preserve occupancy and face rents.
Periods of negative net absorption and increased incentives are
not unusual as the demand for office space is typically sensitive to
economic cycles.
However, the office sector has proven its resilience as lease
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structures help protect income through these periods. The last
reporting season showed the strong fundamentals of the office sector
and delivered a positive outlook.
Office.
TOTAL SALES TOTAL SALES
VOLUMES TO Q3 2020
75% $4.3B
4 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & Teams
Australian Office Market Snapshot. PURCHASER TYPE
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
Investment activity is expected to increase above average levels in 2021
with investors having substantial capital to be invested in the office market. UNDISCLOSED
1%
OFFICE MARKET SALES VOLUMES - CBD & METRO
PURCHASER PURCHASER
TYPE TYPE
OFFSHORE
2019 DOMESTIC OFFSHORE
2020 DOMESTIC
39% 60% 46% 54%
2019 Q3
$17.347B
SOURCE OF PURCHASER CAPITAL - CBD & METRO
137 ASSETS
CHINA HONG KONG
SHARE 2019 1% SHARE 2019 8%
2020
SHARE 2020 24% SHARE 2020
Case Study.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
PARTNERSHIP BETWEEN CROMWELL AND
BLACKROCK FORMED THROUGH $120M
SALE IN SYDNEY.
Our experts transacted 475 Victoria Avenue,
Chatswood (50 per cent) on behalf of our client
Cromwell to BlackRock.
CHALLENGE
We worked with our client Cromwell on reviewing their capacity
to unlock capital for further reinvestments into their development
pipeline, including additional NLA for 475 Victoria Avenue,
Chatswood.
We sought a suitable partner who would agree to retain the
existing management structure and would provide conviction to
speculatively develop additional NLA on the site.
SALE
TRANSACTION
Office Outlook.
ASSET SUMMARY $120M
Situated in the heart of the booming Chatswood precinct, 475 Victoria Avenue comprises two The outlook for the office market remains very positive. There has been many articles written on
13-level office buildings, ground floor retail and three levels of basement parking. The asset
A$240 MILLION (GAV) the underlying fundamentals of the office with work from home being widely adopted, affecting
comprises dual frontages, with access to Victoria Avenue and Brown Street and has a NLA A$120 MILLION (50%)
of 24,812sqm with a site area of approximately 6,030sqm. The asset sits between the main
occupancy and take up. While flexibility will become more prevalent, recent surveys showed that
northern rail line and newly completed metro north rail and the Pacific Highway.
DATE over 85 per cent of office workers do not want to give up their desk. Building company culture
FEBRUARY 2020 (EXCHANGE)
MAY 2020 (SETTLEMENT)
and collaboration are also key aspects of the office environment. This will underpin long term
occupancy and performance.
NLA RATE/SQM INITIAL YIELD
24,812SQM $9,673/SQM 5.2%*
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We expect that the office sector will continue to attract strong demand. Australian real estate
* approximate
RESULT remains highly attractive globally. High yields, a resilient economy and political stability underpin
We worked on behalf of Cromwell on a capital partnering transaction on the basis of a 50 per AT COLLIERS, WE MAXIMISE THE
the strong market fundamentals. Many offshore groups have management teams in place in
cent acquisition. We introduced BlackRock as a suitable value-add partner, given their recent POTENTIAL OF PROPERTY TO Australia and we expect flow of capital to continue to increase through to 2020 and into 2021.
track record on The Zenith and their conviction of long term growth in the Chatswood market. ACCELERATE THE SUCCESS OF
OUR CLIENTS. THIS TRANSACTION
The off-market transaction created a new partnership between Cromwell and BlackRock, with ENSURED CROMWELL HAD MAXIMISED With the high demand for prime grade stock, we expect that cap rates will hold, and prime assets
THEIR PROPERTY STRATEGY FOR
the view of aligning a current asset management plan along with a development plan, given THE LONG-TERM BENEFIT OF THEIR
with long WALE and strong covenants could see further cap rates compression and uplift in
the underutilised nature of the current site. BUSINESS. value. The two tiered market will become more obvious and secondary assets with high vacancy
levels will see decline in values due to longer let up periods and possible cap rates softening.
6 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & Teams
Investment activity in the retail sector has been sustained by Portfolios heavily weighted towards regional centres saw larger
Retail recovery is on the horizon.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
transactions of well located, neighbourhood-based centres, which falls in rent collections in Q2 2020. By contrast, portfolios with a
The retail sector has seen one of the largest impacts during the we expect to continue through to the end of the year. What has higher exposure to convenience-based retailers saw substantially
COVID-19 pandemic, however there are signs that a recovery in been absent this year is the large regional centre transactions higher rental collections.
household consumption is on the horizon. Spending patterns have which significantly boost total sales.
Through July and August several of the large retail landlords
been significantly disrupted with some categories such as travel being
The retail property sector has seen unprecedented disruption reported a substantial improvement in rent collections with most
off the cards for Australian households during 2020. Last year travel
to operations and income as a result of the COVID-19 pandemic. Code of Conduct lease negotiations resolved.
accounted for $110 billion with approximately half being international
However, the amount of disruption experienced across each
travel. Coupled with Federal Goverment stimulus and early With this high level of disruption and income write downs due to
retail sub sector has not been equal. Convenience based centres
superannuation withdrawals, Australian households have contributed the Code of Conduct, most of the listed sector have undertaken
anchored by supermarket tenants have seen some turnover
over $70 billion into the economy between March and September external revaluations of their entire portfolio which has been
growth through greater basket sizes during the lock down period,
and used the balance to build up their savings. Household savings reported as of June 2020. Listed owners of retail have factored
while ‘higher order’ centres with discretionary and ‘retailtainment’
increased dramatically during the June quarter jumping from 6.0 in softened cap rates, together with below the line provisions
offers have seen significant footfall impacts. States which have
percent in March to 19.8 per cent in June. This level of saving gives for lost income and potential falls in occupancy between the
seen restrictions largely lifted are seeing foot traffic close to pre
the capacity for household consumption to improve substantially in the December 2019 and June 2020 reporting seasons.
COVID-19 levels and a recovery in retail sales.
coming quarters, which bodes well for the retail sector into 2021.
Most transactions and divestment programs in the first half of Our analysis of changes in cap rates saw regional and sub-
Through the height of the COVID-19 pandemic, we saw most regional centres soften on average 26 basis points, with CBD
2020 were placed on hold while the implications of the pandemic
investment activity across all property sectors halted, with the retail retail softening 17 basis points and neighbourhood centres by
became more apparent. The federal government’s Code of
sector bearing the greatest exposure to the lockdown measures. just 14 basis points. All retail portfolios have seen a fall in values
Conduct has resulted in selective rent holidays, abatements and
However, as restrictions have eased in most States we see that between December 2019 and June 2020.
waivers which significantly impacted rental collections through the
demand for high quality centres, regardless of size, is emerging.
April to June period.
Centres servicing a strong catchment which have seen sustained
capital investment and are leased to a high proportion of non-
discretionary tenants will always be in demand, regardless of the RARE TRADE OPPORTUNITIES.
NEIGHBOURHOOD CENTRE NEIGHBOURHOOD CENTRE
economic cycle. TRANSACTION VALUE ($) TRANSACTION VALUE ($) We expect that there is likely to be some further disruption in the
Q3 CY2019 Q3 CY2020
retail sector as retailers and landlords come to terms with the
As a ‘COVID normal’ emerges, we are starting to see the return of
investment in the retail sector and expect that investment volumes will
improve through to the end of 2020.
$1.09B $1.18B ‘COVID normal’. We expect this to lead to opportunity in the current
environment to purchase “Trophy” assets that are rarely traded.
If uncertainty around trading conditions continues and liquidity is
required, there will be an assessment of major portfolios which may
SPRING FARM provide opportunities for assets to come to the market which may
In the first three quarters of 2020, investment volumes were SHOPPING CENTRE
have not been traded in many years. To reinforce this point, we have
SOLD BY: COLLIERS
COLLIERS INTERNATIONAL
estimated at $$2.66 billion across 70 assets. This is a 29 per cent
decrease in value and 16 per cent decrease in total assets when $34.75M 5.77% YIELD witnessed a significant increase in the number of investors looking to
retail, in order to take advantage of generational pricing dislocation,
compared to the corresponding period in 2019. combined with record low interest rates.
Retail.
7 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & Teams
Australian Retail Market Snapshot. PURCHASER TYPE
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
Investment activity is expected to increase as investors are well
capitalised and ready to take advantage of buying opportunities.
OFFSHORE OFFSHORE
14% 9%
RETAIL SALES VOLUMES
PURCHASER PURCHASER
TYPE TYPE
2019 DOMESTIC
2020 DOMESTIC
86% 91%
2019 Q3
$3.786B
SOURCE OF PURCHASER CAPITAL
83 ASSETS
CHINA MACAU
SHARE 2019 3% SHARE 2019 0%
2020
CANADA SHARE 2020 1% SHARE 2020 1%
Q3 SHARE 2019 2%
SHARE 2020 0% SWITZERLAND
SHARE 2019 0%
SHARE 2020 4%
$2.676B HONG KONG
SHARE 2019
SHARE 2020
0%
2%
%
29%
FRANCE
CHANGE 70 ASSETS SHARE 2019 3%
LY SHARE 2020 0%
USA
SHARE 2019 1%
COLLIERS INTERNATIONAL
SHARE 2020 0% TAIWAN
RETAIL SALES VOLUMES BY ASSET CLASS SHARE 2019 2%
SHARE 2020 1%
MALAYSIA
SHARE 2019
Case Study.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
No industry is ever unchanging. At the beginning of the millennium, change
in retail meant seeking growth and expanding store networks.
Historically low supply of retail floorspace per person, high foot traffic,
sustained population growth and low penetration of online retail
characterised the retail environment in Australia. With little barriers to entry,
having a shopping centre presence made sense for local retailers who saw
growth prospects in brick and mortar expansion.
Over the last decade, Australia has emerged as the place to be for global
brands. International retailers have established a strong presence in the
country with more than 140 new entrants since 2012.
The next decade is expected to be very different. A subdued economic
climate and consumer confidence, change in consumer habits, plateauing
discretionary sales and shift to online shopping are likely to have a profound
impact on the industry. The COVID-19 pandemic will also be a massive
catalyst for change.
Looking forward we expect retailers will begin rationalising their store We studied the trade area of a super-regional, top 10 ranking Retailers are also realising that pureplay ecommerce is not the
networks, preferring to occupy space in high-quality shopping centres shopping centre in Australia. The trade area includes three way forward and omni channel retailers are reporting stronger
serviced by strong catchments and high footfall. In this scenario increased sub-regional centres in the primary and secondary sectors, and growth. Online retailers are generally not as profitable as their
efficiency, more sophisticated leasing decisions and site selection with three regional centres in the tertiary sectors. We found that 72 brick and mortar equivalents; typically, variable costs are higher
relevance to the needs of the local trade area will be essential. per cent of tenants in the studied centre were also represented and increased volumes does not fractionalise costs.
in a competing centre. This number reaches 80 per cent when
Scrutinisation of store location and performance is likely to lead to considering the national and chain tenants only. This analysis When stores open, it creates a halo effect for ecommerce sales
opportunistic closures freeing up capital to redeploy towards network typically outlines the opportunity for consolidation while also because it generates awareness and customer engagement. On
consolidation. This will allow retailers to improve efficiency by driving profit keeping a physical presence in a catchment. average, when a retailer closes a physical store, it loses 83 per
out of key locations. cent of online customers in the catchment. Retailers are aware
In the medium-term future, retailers will rationalise their store that a physical store footprint is necessary to achieve strong
network and will most likely decide to keep a physical presence online sales growth.
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in CBDs and high quality centres. Store rationalisation is not all
bad news for retail as we will see the emergence of fewer, but The better-quality centres, those with the most traffic, will be the
better stores. In addition, the lost sales from store closures will be ones where the retailers want to be located and will emerge as
redirected towards other stores of the same network, increasing winners in this process. We expect to see continued demand for
profitability – or towards other retailers proposing a more space in the high-quality, dominant and well managed shopping
relevant offer. Previously held market share will be freed up once centres.
competitors fall away, and some outperforming players will be
emboldened by opportunities that arise during the consolidation
reshuffle.
9 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & Teams
Retail Outlook.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
We are starting to see that there is hope for recovery in the retail
sector over the next 6 to 12 months due to a significant increase in
household savings. Labour markets appear to be recovering faster
than expected with a fall in unemployment and the participation rate
is trending back to pre COVID-19 levels in some states. As more
confidence returns to the economy and labour markets, consumers
will be more inclined to spend some of their savings which will largely
benefit the retail sector. Customers are starting to return to large
centres while some of the penetration of online shopping easing,
although remains above pre COVID levels. With consumers not able
to travel internationally, there is a greater uptake on local holidays,
however some of this spending is likely to be retargeted to consumer
goods, thereby offsetting impacts to decreased foot traffic in the
medium term.
We expect that once comfort in medium to long term forecasts
are reached by investors, capital will look to exclusively target
assets underpinned by strong catchments with ideal property level
fundamentals. This mismatch between ‘ideal vs. challenged’ assets
will become much starker and create a significant two tired market,
and we believe that the saleability of some assets will be challenged
without significant repositioning potential.
Centres which have received sustained investment over its lifecycle
in order to maintain relevance with its local catchment, will continue
to be highly sought over the short term, with investors being
opportunistic where the investment profile is right.
We expect that non-discretionary centres will be in high demand
and that there is a possibility of yield compression and increased
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values for well-located, strong catchment centres. There are several
institutions which are looking to invest further in this sector. Large
Format Centres have continued to perform well and have seen limited
valuation write downs.
We also expect that quality assets regardless of size and sub-category
which have strong catchments and performance will continue to be
in demand. The next 12 months could provide some significant buying
opportunities for long held trophy assets.
10 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsSALE & LEASEBACK TRANSACTIONS Given pricing has remained firm for industrial assets post
Industrial & Logistics in demand.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
Given increased pressure on balance sheets, many industrial COVID-19 when compared to other sectors, corporates are
Industrial and logistics property has been brought to the forefront in businesses are reassessing their capital needs to support their unlocking the true value of their asset and leaving no money on
2020 and is now the most sought-after real estate asset class among long-term growth. Each business has been impacted differently the table.
a large share of institutions and private investors. Beyond the macro by COVID-19 with some reporting a significant pick-up in business
While not a new phenomenon, sale and leaseback activity in the
themes, investment allocations to the sector have risen significantly revenue while there are others who will struggle to trade through
sector has represented 60 per cent of total investment volumes
over the past 12 months as groups reweight from other real estate the current period.
so far in 2020 with $2.16 billion trading over the period. By
sectors or look to gain further exposure while the depth of capital is
While the overall financial impact of COVID-19 is still unknown, comparison, approximately $1.4 billion in sale and leaseback
continuing to place downward pressure on yields.
there will be several months of operational impacts across most transactions were recorded in 2019.
In recent times of economic uncertainty, the industrial and logistics industries. Although industrial businesses have been more
Given the current economic uncertainty and coupled with the
sector has proven to be resilient, buoyed by several cyclical and sheltered in recent months given the exponential growth of
low interest rate environment, sale and leaseback transactions
structural tailwinds which continue to underpin the occupier market. e-commerce and demand for food and pharmaceutical goods,
represent a viable opportunity for corporates to liberate capital
These fundamentals have not gone unnoticed from an investment businesses have become more sensitive to costs in the current
that is tied up on the balance sheet and reinvest the funds
perspective with a large volume of capital looking to be placed in the climate and many owner occupiers are increasingly looking at
back into their business or reduce debt. Increased corporate
sector, particularly for prime grade assets in core locations. their property occupancy strategies to unlock value.
M&A activity has also fuelled transaction volumes as several
In the nine months to Q3 2020, $3.57 billion ($10 million +) has traded Those corporate businesses who own their real estate assets groups acquire businesses and then split out the real estate
within the sector and compares to $3.38 billion at the same point can ensure the future viability of their business by potentially components through a sale and leaseback arrangement. The
in 2019. Unlike previous years where a large share of investment entering into a sale and leaseback arrangement and freeing up late 2019 divestment of the Arnott’s portfolio highlights this – the
volumes were derived from secondary grade assets, the bulk of assets their latent real estate assets. For this reason and coupled with three assets were brought to the market by KKR following their
to trade in 2020 have stemmed from prime offerings. To illustrate, the the strength of the industrial and logistics investment market, sale acquisition of the Campbell Soup business.
average deal size so far in 2020 has been $67.4 million, well above and leaseback transactions have been an integral factor within the
the $30.7 million average recorded in 2019 and the five-year average investment market in 2020.
of $33.0 million.
CORPORATE PROFILE.
TOTAL SALES TOTAL SALES
Two key themes have emerged in 2020 – flight to quality and sale and TO Q3 2019 TO Q3 2020 In 2020, sale and leaseback activity has stemmed from a diverse
leaseback transactions. Shifting market dynamics has forced groups
to reassess risk and chase security and as a result, prime assets with
strong underlying covenants have been highly sought after. Similarly,
$3.38B $3.57B corporate profile. By volume, 35 per cent of sale and leaseback
assets to trade this year are from manufacturing-based businesses,
followed by retail trade (27 per cent), transport and logistics (15 per
cent) and pharmaceutical (11 per cent). The strong representation
corporates who own their warehouses are increasingly taking
of manufacturing is varied and includes food, glass and packaging
advantage of strong market fundamentals and the strength of the related businesses. Major corporates to trade their industrial assets
COLLIERS INTERNATIONAL
industrial and logistics market via a sale and leaseback strategy and include ALDI, DHL, Sigma Pharmaceutical, Telstra, Owens-Illinois
subsequently, these types of transactions have dominated investment Australia and Border Express.
volumes within the sector in 2020. The one constant in these transactions has been corporates taking
Industrial&Logistics.
advantage of favourable pricing metrics and the overall strength of
the industrial and logistics market.
11 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsAustralian Industrial & Logistics
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
VICTORIA QUEENSLAND
Market Snapshot.
TOTAL SALES TOTAL SALES TOTAL SALES TOTAL SALES
TO Q4 2019 TO Q3 2020 TO Q4 2019 TO Q3 2020
2021 FORECAST
The industrial and logistics investment market is expected to gather $1.08B $1.25B $1.56B $530.6M
further momentum in 2021. At present, there is an estimated $26 billion
in capital looking to invest in the sector. Given that just $3.57 billion has Almost $1.25 billion has traded across the Victorian industrial Investment sale volumes in Queensland have fallen in 2020
traded so far in 2020, it highlights the significant mismatch between market so far in 2020. Similar to the trends recorded in 2019, with $530.6 million trading so far, compared to $1.56 billion
supply and demand and the significant volume of unsatisfied capital fewer assets have been brought to market this year with in 2019. Notwithstanding this, two assets above $100 million
looking to be placed. As a result of this, we expect that additional assets 16 assets trading so far in 2020, underpinned by Centuria’s have traded this year in Brisbane - ALDI Brendale ($132.5
will be brought to market in 2021 as groups look to capitalise on the acquisition of the Telstra data centre at Clayton for $416.7 million) and the remaining 50 per cent stake in the Coles cold
continued strength of the industrial and logistics market. million. However, with an average value of $77.8 million, storage distribution centre at Parkinson ($152.5 million).
compared to $28.3 million in 2019, the bulk of transactions to
Yields have remained stable in 2020, however, there is
trade have been prime assets.
PRIVATE 9.6% evidence of compression in selected submarkets. Notably this
Other major sales in Victoria included Aldi Dandenong South includes the above mentioned Coles cold storage distribution
OFFSHORE 8.1% 2020 ($158.6 million), Ford Mickleham ($73.5 million) and 415 centre - The first 50 per cent stake was acquired by DWS in
INVESTMENT
VOLUMES Cooper Street, Epping ($71.5 million). The confluence of few mid-2019 on a yield of 5.63 per cent ($134.2 million) while
BY PURCHASER assets for sale and significant levels of demand has led to the remaining 50 per cent sold on a yield of 5.11 per cent
TYPE
further compression in yields in 2020, albeit concentrated ($152.5 million), reflecting 52 bps of compression over the
INSTITUTIONAL 82.3% within the prime market. year.
NEW SOUTH WALES WESTERN AUSTRALIA SOUTH AUSTRALIA
TOTAL SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL SALES TOTAL SALES
TO Q4 2019 TO Q3 2020 TO Q4 2019 TO Q3 2020 TO Q4 2019 TO Q3 2020
$1.75B $1.48B $105.4M $158.5M $324.1M $161.4M
Investment volumes in the year to Q3 2020 across New South Wales Just three assets above $10 million have traded so far Four transactions above $10 million have been recorded
totalled just under $1.48 billion across 17 assets, representing an average in 2020 with investment volumes for the period totalling in South Australia this year, totalling $161.4 million, with an
COLLIERS INTERNATIONAL
value of $87.0 million. Investment volumes so far in 2020 have accounted $158.5 million. However, this surpasses the level recorded average deal size of $40.4 million. Two transactions have
for 84 per cent of the levels recorded in 2019 where $1.75 billion traded. in 2019 where volumes totalled $105.4 million. Two major been sale and leasebacks, totalling just over $80 million.
transactions were recorded and were Channel 7 West Perth, The buyer profile has been dominated by institutions at
Institutional investors remain heavily focussed on the Sydney market
Osborne Park ($75 million) and Stockland’s divestment of 89 per cent and includes Charter Hall and Primewest.
and have acquired 88 per cent of assets to trade. Alternatively,
the Balcatta distribution centre - 22 Geddes & 20 Kenhelm
corporates have represented 54 per cent of vendors by volume over The largest asset to trade this year in South Australia was
Streets, Balcatta ($63.5 million) to Charter Hall.
the period with almost $800 million trading via a sale and leaseback. the Rand Distribution Centre at Direk which sold to Moelis in
Major sale and leasebacks in 2020 have included Aldi Minchinbury and Despite just three assets trading, demand remains elevated, August for $63.05 million. The other trades include 617 - 625
Prestons ($359.9 million collective total), Sigma’s distribution centre at evidenced by the sales campaign of the Balcatta distribution Port Road, West Croydon ($59.1 million) which sold to Charter
Kemps Creek ($133.6 million) and 37-39 Wentworth Street, Greenacre centre where there were eight bids received at the close of Hall as part of the OIA portfolio and the sale and leaseback of
($100 million). round one and included institutional, offshore and private the Border Express distribution centre at Salisbury South to
capital. Primewest ($22 million).
Recent sales indicate yield compression for selected core markets.
12 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsCase Study.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
OUR EXPERTS TRANSACTED THE
GREENACRE FACILITY TO DEXUS
ON BEHALF OF OUR CLIENT REAL
DAIRY AUSTRALIA.
CHALLENGE
We worked with our client Real Dairy Australia
to seek a means of unlocking capital from their
facility in order to reinvest into their business.
We sought to find a buyer who could met the
pricing expectations for our client. The facility is
located at 37-39 Wentworth Street, Greenacre,
Western Sydney, a core infill logistics location.
The state of the arts logistics property sets a
new benchmark for cold store assets in Australia,
across 19,246sqm of total building area.
DEXUS
TRANSACTION
$100M STRATEGY RESULT
We undertook a tightly controlled process that Our process saw Dexus transact on the long-WALE facility for
would help achieve the best outcome for our $100 million, in the midst of the COVID-19 environment. This
AT COLLIERS, WE
MAXIMISE THE
client. We had been working with institutional transaction marks the latest in a series of sale and leaseback
POTENTIAL OF owner Dexus and knew cold storage was an transactions we have completed to the benefit of our clients. Recent
PROPERTY TO
asset class they had strong interest in. We sale and leaseback transactions have seen our National Industrial
COLLIERS INTERNATIONAL
ACCELERATE THE
SUCCESS OF OUR collaborated with our cold-store Valuations Capital Markets team act on behalf of groups including Toyota,
CLIENTS. THIS
TRANSACTION expert Catherine Allotta to help Dexus assess Visy, Lincraft, Border Express, Kaufland, Australia Post, Matrix
ENSURED REAL DAIRY their interest in the facility. Engineering and Qube.
AUSTRALIA HAD
MAXIMISED THEIR
PROPERTY STRATEGY
FOR THE LONG-TERM
BENEFIT OF THEIR
BUSINESS.
13 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsIndustrial & Logistics Outlook.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
The outlook for the industrial and logistics sector remains positive.
While a drop in the level of population growth will create a drag
on consumer consumption, this will be partly offset by significant
levels of infrastructure investment and the exponential growth of
e-commerce. More broadly, economic conditions are expected
to improve in Q4 2020 and into 2021 which will further support
spending patterns and industrial occupancy demand.
While local institutions have dominated the investment market in
2020, once the Australian borders open for business travel, we
expect increased demand from offshore groups in both a direct
and indirect capacity. Local institutions are expected to remain
heavily focussed on the prime core market as they continue to
place a large emphasis on covenant strength in the current period.
Alternatively, secondary assets will remain heavily sought by
privates and mid-tier funds looking for more opportunistic returns.
With fewer assets being brought to the market compared to the
past five years, investment in alternative subsectors including
cold storage distribution centres and data centres will become
more prevalent. Previously these niches of the market were often
shunned by investors as they are highly specialised, however,
institutions have come to better understand the fundamentals
driving each sector.
From a pricing perspective, prime yields are expected to largely
remain at their current levels while there is likely to be some
upward movement in the secondary market in some instances as
risk becomes priced in surrounding covenant, asset and location.
Yields for industrial and logistics assets will remain resistant
COLLIERS INTERNATIONAL
to upward movements given the strong investment flows into
the sector and the favourable spread to the risk-free rate and
cash rate.
14 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsTransaction Activity Halts.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
2020 has brought an abrupt halt to the bull run of transactions for
the Australian hotel investment market. Transactions have declined
markedly to total $406 million over the first nine months of the year
2019 45 TRANSACTIONS 2020 YTD
15 TRANSACTIONS 2021
and with expectations that annual volumes will total around $600 TRANSACTION VOLUME AVERAGE TICKET SIZE TRANSACTION VOLUME AVERAGE TICKET SIZE LIKELY DOLLAR VALUE
million, relative to the long-term average of $1.6 billion. This would
represent the lowest annual transaction volume since 1999 and
$2.0B $44.5M $405.6M $27.0M $2.2B
-40.1%
highlights the severity of the COVID-19 crisis for the Australian hotel
investment market. PRICE PER KEY NO. ROOMS SOLD PRICE PER KEY NO. ROOMS SOLD NO. ROOMS LIKELY TO SELL
$334,315 5,606 $343,729 2.8% 1,180 7,000 PLUS
To date the industry has worked together well to manage the impacts
of the crisis; operators have treated employees with empathy
AUSTRALIAN HOTEL TRANSACTIONS 2000 TO Q3 2020
and banks have shown restraint and a willingness to work with
their clients to manage cashflows. Temporary changes to external
administration procedures, as well as extension of the JobKeeper Number of Transactions
2000
2002
2004
2020
2006
2008
2005
2009
2003
2007
2001
2010
2012
2014
2016
2018
2015
2019
2013
2017
2011
government subsidy scheme to March 2021 and changes to Hotel
Industry General Award (HIGA) are also providing an additional level 4,500 70 Transaction Volume
NUMBER OF TRANSACTIONS
TRANSACTION VOLUME (MILLIONS)
of support to hotel owners. This is pushing asset sales into 2021 and 4,000
60
beyond. 3,500
50
3,000
Many of the transactions which have concluded in 2020 were launched
40
prior to COVID-19 with few new campaigns having commenced since 2,500
lockdowns began in March. Deal flow has primarily comprised smaller 2,000 30
assets being acquired by private investors with only one transaction above 1,500
20
$100 million. The ticket size averaged just $27 million, a decline of 40 1,000
per cent compared to 2019, whilst the average price per key increased 500
10
marginally to $343K. Whilst partly reflecting the timing and composition
– 0
of deals, it highlights how post-COVID hotel pricing remains largely
untested in Australia. Sydney has been the most active investment market SOURCE Colliers International NOTE $5 million and above
with three deals concluding including one site sale and more asset sales
currently in play.
COLLIERS INTERNATIONAL
Hotels.
15 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsOFFSHORE CAPITAL CONTINUES TO DOMINATE AUSTRALIAN HOTEL TRANSACTION 2000 TO Q3 2020 BY SOURCE OF CAPITAL
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
Despite travel restrictions in place since February and hard border
closures from the end of March, offshore capital remained active $4,500
MILLIONS
accounting for 70 per cent of deal flow. Foreign buyers acquired the
three highest value assets. $4,000
The ongoing active role of foreign capital in Australia’s hotel $3,500
investment market will be crucial to underpinning valuations over the
$3,000
near term.
Offshore groups have accounted for over half of the capital $2,500
invested over the last 20 years and are playing a more active role
$2,000
in the development of new accommodation stock. The closure of
international and state borders is restricting business as normal with a
$1,500
reluctance by foreign investors to commit capital without undertaking
a physical inspection. This is being compounded by the slowing of
$1,000
FIRB approvals with thresholds reduced to zero.
$500
$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
UNKNOWN INSTITUTION
4% 10%
Australia China Hong Kong Japan Singapore UK USA Other
SOURCE Colliers International
INVESTMENT
FUND Whilst Asian counter cyclical buyers have typically stepped in Valuations now place more emphasis on the 10-year discounted
11% during periods of crisis, the circumstances we are experiencing in cashflow approach and likely rate of return an investor will
HOTEL TRANSACTIONS 2020 are providing a unique window of opportunity for domestic require over this period, as well as the stabilised earnings or yield
BY BUYER TYPE OWNER investors and offshore groups with an established team on the approach.
OPERATOR
ground. All equity purchasers are also advantaged in the current
COLLIERS INTERNATIONAL
19% H1 2021 presents a confluence of factors against a weak demand
climate given the reticence from many domestic lenders to
PRIVATE
provide debt to the hotel sector. backdrop with the proposed end of JobKeeper, cessation of the
51%
bank moratorium and deferral of insolvent trading provisions,
What has become clearer over the past few months is how the reopening of closed hotels and opening of new supply, as well as
OTHER
Australian hotel valuation community is treating the impacts of the commencement of the new Foreign Investment Review Board
5%
Covid-19 and their approach to valuations given the range of (FIRB) regime in January 2021 – all of which will factor in any
methodologies upon which they rely. transaction.
SOURCE Colliers International
16 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsVARIABILITY BETWEEN MARKETS HAS NARROWED With room night demand largely limited to returning
Trading Snapshot.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
quarantined travellers in the major centres and the domestic
Occupancy levels have generally exhibited a strong downward leisure segment, room rates across the ten markets have
The global hotel and tourism sectors have been one of the most impacted by
trend throughout 2020 in response to lockdowns and also narrowed to range between $210 in Sydney and $114 in
social distancing measures introduced by governments across the world in
restrictions on travel between states and territories. Darwin over the same period.
response to COVID-19 with impacts widespread and indiscriminate across
borders, cities and visitor segments.
Only four accommodation markets have recorded occupancy We expect this narrowing between accommodation markets
The outlook for hotel trading across Australia continues to improve, though levels above 45 per cent over the first eight months of the to unwind throughout 2021 as demand conditions normalise
demand is expected to come back in layers over the coming year. Australia’s year including Hobart (46.4 per cent), Melbourne (46.1 per which should create some excellent buying opportunities
domestic leisure markets are expected to recover first as interstate border cent), Adelaide and Perth (both 45.1 per cent). with a substantial uptick in stock being brought to market as
restrictions are lifted with notable trading spikes during school holiday periods government stimulus unwinds.
boosting regional hotel markets. The establishment of a travel bubble between
New Zealand and NSW/NT effective from October 2020, is also hoped to AUSTRALIAN HOTEL MARKETS – MONTHLY OCCUPANCY LEVELS TO AUGUST 2020
provide a blueprint for the wider reopening of Australia’s international borders,
providing an additional boost to hotels.
MAJOR CENTRES SECONDARY CENTRES
Domestic corporate travel is expected to be slower to recover but with
growing momentum through the second half of 2021, helping to deliver much 100 100
OCCUPANCY LEVEL (%)
OCCUPANCY LEVEL (%)
90 90
needed demand into the CBD hotel markets. Expectations are for international 80 80
tourism and MICE demand to commence recovering in 2022. 70
60
70
60
50 50
The opening of many new CBD hotels, originally slated for 2020, have been 40
30
40
30
pushed back which is likely to add additional downward pressure on trading 20 20
10 10
over the first half of the year. 0 0
SYDNEY MELBOURNE PERTH BRISBANE CANBERRA GOLD COAST CAIRNS DARWIN ADELAIDE HOBART
Jan Feb Mar Apr May Jun Jul Aug Jan Feb Mar Apr May Jun Jul Aug
SOURCE STR, Colliers International SOURCE STR, Colliers International
AUSTRALIAN HOTEL MARKETS – MONTHLY ROOM RATES TO AUGUST 2020
MAJOR CENTRES SECONDARY CENTRES
COLLIERS INTERNATIONAL
300 300
AVERAGE DAILY RATE ($)
AVERAGE DAILY RATE ($)
250 250
200 200
150 150
100 100
50 50
0 0
SYDNEY MELBOURNE PERTH BRISBANE CANBERRA GOLD COAST CAIRNS DARWIN ADELAIDE HOBART
Jan Feb Mar Apr May Jun Jul Aug Jan Feb Mar Apr May Jun Jul Aug
SOURCE STR, Colliers International SOURCE STR, Colliers International
17 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsALMOST $1 BILLION OF UNSATISFIED CAPITAL INNOVATION OVERCOMES CHALLENGES
Case Study.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
Serious buyers remain active and whilst the number of physical Colliers database of active hotel investors and online property
ON MARKET CAMPAIGNS DRIVE STRONG INQUIRY
inspections may reduce, the quality of investors in the sense of portals will continue to be the main way buyers browse, discover
On market campaigns are driving strong inquiry against a backdrop of readiness to buy remains strong. The buyer pool is also shifting and shortlist properties, and now Colliers are offering enhanced
historically low hotel transaction activity and a weight of capital waiting with new sources of capital looking at hotels for potential listings with interactive features to overcome the challenges
to be deployed. Colliers has launched four on market campaigns post- conversion including build-to-rent, co-living and student during these unprecedented times. Innovative marketing
COVID with hotels being marketed for sale in New South Wales, Victoria accommodation, which reinforces the need to put the asset solutions include increased use of videos and virtual tours using
and Tasmania. Inquiry level has been immense and with a strong level on-market to ensure the opportunity is exposed to the broadest 360-degree cameras. Engaging with interactive digital marketing
of engagement throughout and bidding at EOI close. buyer pool. New funds are also being raised actively targeting tools can help replicate memorable service for remote audiences
the Australian hotel sector. who may be physically unable to inspect.
PRIVATE
Offshore capital remains active despite the constraints, and Colliers Hotel transaction experts are in constant contact
while this may slow settlements due to the new FIRB approval with active buyers and have a good understanding of current
requirements, we are confident that FIRB will continue to investment mandates and will work with our national team to
ALTERNATE USE
support foreign investment into the hotel sector, as it has overcome the challenges of closed state borders to achieve
traditionally done. positive outcomes for our clients. The exchange of unconditional
ON MARKET contracts for the Rydges on Swanston during Victoria’s stage 4
OWNER CAMPAIGNS
OPERATOR
BIDDERS BY lockdown is testament to this.
BUYER TYPE ($)
OFFSHORE ON MARKET
CAMPAIGNS
INVESTMENT DEVELOPER SOURCE SOURCE Colliers International
FUND
OF BIDDING
CAPITAL ($)
DOMESTIC
2020 On Market Campaigns.
On average each
campaign resulted
in more than 220
COLLIERS INTERNATIONAL
inquiries and over 40
Confidentiality Deeds
signed and 15 first
round bids providing
a depth of potential
purchasers to work
with.
Radisson Rydges The Islington The Sands
SALES
INQUIRIES
OVER
DEEDS
SIGNED
OVER
Hotel & Suites on Swanston South Hobart Torquay
220 40 LAUNCHED
STAGE
APRIL 202O
PENDING FIRB
LAUNCHED
STAGE
APRIL 2020
UNCONDITIONAL CONTRACT
LAUNCHED
STAGE
AUGUST 2020
EXCLUSIVE
LAUNCHED
STAGE
AUGUST 2020
UNDER INSTRUCTION
DUE DILIGENCE BY RECEIVER
18 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsAustralia is the midst of a hotel development cycle with more than New market entrants have also played a greater role in the
Hotel Market Outlook.
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
4,800 new rooms under construction and scheduled to open in Australian hotel investment market over the past decade having
With room night demand expected to come back in layers over the coming 2020. Many of these openings have been pushed back with new acquired an estimated $11 billion of hotel stock in the major
years, investors (and lenders) are expected to place laser-sharp focus hotels unable to qualify for the JobKeeper subsidy. cities. Whilst some of these owners have gone on to build out
on segmentation with geographic source of business and market mix portfolios, others will be tested by their ability to withstand the
Newly developed hotel stock is expected to face greater current headwinds and an ability to right-size the operation to the
becoming key factors tor annual business planning and underwriting future
headwinds with weaker demand through 2021. Some of these projected level of demand. Lender liability is a significant concern
financial performance in hotel investments. The potential for a dramatically
hotels will struggle to gain share and stabilised trade is likely to and one that becomes aggravated with a more actively operating
altered domestic and international travelling public also has the potential to
be at a considerably lower level than the financial forecasts upon business. A borrower that does not have experience in owning a
skew many previously held assumptions.
which construction projects were predicated. Refinancing these hotel and working with their operator during periods of economic
The Millennial traveller (20-40 year olds) already made up over one third projects could prove challenging. downturn can cause a lender concern given the potential impact
of the world’s hotel guests and with predictions that this would exceed 50 on the hotel’s value.
Hotels within mixed-use projects - where the hotel brand has
per cent by 2020. In a post-COVID world, millennial travellers are expected
been leveraged to position the property and assist with the sale Whilst we foresee obvious challenges as we move into 2021,
to represent an even higher proportion of the world’s hotel guests, as older
of residential apartments - are more likely to come to market Australia’s management of the health crisis and size of the
generations shun international travel, particularly to destinations which
as developers look to crystalize development profits. Higher domestic tourism market will result in bringing opportunities for
are perceived to be higher risk. The success of countries in containing
participation rates by non-bank lenders, particularly for more medium to long term investors with an availability of stock past a
the virus and the approach of governments to the establishment of green
marginal hotel development projects, may also add to the stress development phase. Ongoing government support for what was
lanes for travelers in the absence of a vaccine will also determine which
for some new hotels. once the nation’s second-biggest export industry, bringing in more
nations resume international travel first and more importantly which are
welcomed. than $100 billion a year in spending, is also expected to set a
strong foundation for recovery.
COLLIERS INTERNATIONAL
19 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsThe RBNZ continues to keep monetary policy settings
Introduction Overall Investor
AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
accommodative and financial markets liquid, but there is an
Market Conditions overall reluctance from major banks to write new business.
This uncertainty has increased the demand for debt advisory
Despite some uncertainty and The economic downturn created by the COVID-19 lockdowns services, which are proving beneficial. We are also noticing a
short-term disruption to market and the introduction of border restrictions has created greater number of non-bank lenders, high net worth privates,
conditions from COVID-19, economic disruption that has reduced the current level of domestic and institutional funds entering the market, albeit at
low interest rates are fueling commercial market activity. a higher cost of capital.
investment activity, especially
for prime properties with strong However, investors are conscious that a rebound and A recent Colliers International APAC research report noted
covenants. resumption in more normal market conditions could eventuate that the yield spread over ten-year government bonds in
due to the forced short-term nature of the situation. As a New Zealand was amongst the highest in the APAC region.
The flight to quality and limited result, investors are turning their focus towards the solid In addition, New Zealand’s approach to dealing with the virus
stock available to purchase is likely market conditions leading up to COVID-19 and reviewing has enhanced its international reputation as a safe haven
to elevate the level of competition the fundamentals. Although not as strong, investors are which is likely to spur greater overseas interest in local
amongst experienced investors postulating that the current uncertainty created by COVID-19 assets. In the short-term, the ability of overseas investors to
driving values higher. could be accommodated in many circumstances, especially if transact will be tempered by border restrictions in place, and
incorporating longer-term projections. likely for the remainder of 2020. A sharp lift in international
activity is anticipated once restrictions are lifted, prior to this
While we are seeing vacancy rates lift from 20-year record
however, domestic players look likely to take the opportunity
lows, the secondary sector is facing more challenging
to fill the gap.
market conditions than in the prime sector, as occupiers and
investors pursue quality premises.
Despite some uncertainty and understandable cautiousness,
A LACK OF ALTERNATIVE OPTIONS TO GENERATE
investors are spurred on by low interest rates, which will RETURNS WILL KEEP INVESTMENT ACTIVITY HIGH.
continue to remain low (and may reduce further) for an However, competition for a short supply of prime assets available
extended period under current forecasts. to purchase will remain a challenge.
COVID-19
This could lead to a return of FOMO for investors. If this
The economic downturn created by eventuates, it is likely to push yields lower and capital values
the COVID-19 lockdowns and the higher for quality stock with positive attributes.
introduction of border restrictions
has created economic disruption.
COLLIERS INTERNATIONAL
NZ Overview.
20 Introduction | Colliers Edge | Office | Retail | Industrial & Logistics | Hotels | NZ Overview | Transactions 2020 | Authors & TeamsYou can also read
