Drivers for investment demand remain strong 

Investment demand remains strong, with $19.7 billion in commercial property transactions over the last year, according to the latest DEXUS Research Australian Real Estate Quarterly Review.

The report, which assesses the current state of Australia’s office, industrial and retail sectors, looks at the implications of strong capital flows into property.

“Investors are adapting to the investment climate of ‘lower for longer’ interest rates and economic growth,” says Peter Studley, DEXUS general manager of research.

“Investment demand remains strong as investors seek the secure income yields provided by well-leased property investments.”

Demand from foreign investors remains strong, accounting for 49 per cent of recent transactions, and Studley says foreign investors are particularly focused on high quality core stock.

The report finds office demand is positive in the eastern states, with leasing activity driven by growth in the information technology, education, finance and professional service sectors, particularly among small firms.

Studley says positive absorption of office space in the east coast markets and significant withdrawals of older stock are likely to provide a welcome offset to new supply scheduled for 2016.

The report finds industrial leasing conditions look more favourable in Sydney and Melbourne on the back of stronger economic growth, with Brisbane conditions mixed and Perth weak. Retail sales continue to grow solidly, supported by low interest rates.

Studley says yields are declining, and values are increasing – signs of a maturing investment cycle.

However, “the drivers of investment demand – being low interest rates and search for secure income yield look like staying in place over the next year.”

Download the Australian Real Estate Quarterly Review Q4/2015.