Knight Frank’s Australian Capital View report reveals growing investor confidence as valuations have reached a cyclical low and asset prices are returning to growth across all sectors.
Transaction volumes reached $9.3 billion in Q1, representing a 26 per cent increase compared to the same period last year.
Knight Frank Chief Economist Ben Burston said there was some strong appeal for these key markets.
“As Australia’s deepest and most liquid capital market and its most international city, cross-border investors consistently highlight Sydney as a key target within the APAC region,” Mr Burston said.
“Brisbane is also in favour given the strong economic growth story of South East Queensland, substantial infrastructure investment and continued rental growth across multiple sectors.”
Knight Frank Senior Economist, Research and Consulting and report author Alistair Read said cross-border capital flows are accelerating as investors look to capitalise on attractive entry points.
“A wide range of groups are now looking to deploy capital in the near-term to take advantage of an attractive entry point and maximise the prospect of long-term capital growth, which has led to a pick up in demand for prime product in the core office, industrial and retail sectors, where investors are able to deploy capital more quickly,” Mr Read said.
Real estate portfolio weightings are expected to rise as institutional investors return to property investment after a period of reweighting their portfolios.
With equity valuations still elevated, direct property investment is becoming more attractive again.
“With the market returning to growth and equity valuations still elevated, investors will once again be turning to direct property investment,” Mr Burston said .
“This will support capital raising as real estate resumes its role as a critical component of institutional capital allocation, with the renewed promise of low volatility alongside significant long-term growth potential as capital values recover from the recent cyclical low.”
The market is also witnessing a shift from debt to equity strategies.
During the downturn, falling asset values and rising interest rates drove allocation into debt strategies, but the return to growth and falling interest rates is changing this dynamic.
“As the market shifts back to growth off the back of falling interest rates, this will moderate some of the drivers behind the expansion of debt strategies and will tilt the balance back to equity investment,” Mr Burston said.
Australia’s relative insulation from tariff risks positions it well in the global market, though some overseas investors may temporarily pause their activities to assess global economic developments.
The retail sector is experiencing renewed optimism with real incomes returning to growth and improved investor sentiment.
Despite broader interest, Knight Frank expects retail specialists to remain the dominant buyers in this sector.
“Non-specialists face several hurdles compared to local specialists including reduced leverage in rental negotiations and higher facility management costs,” Mr Burston said .
The living sectors, particularly build-to-rent and student accommodation, are seeing increased development activity.
Approximately 6,900 student beds and an estimated 8,900 build-to-rent apartments are currently under construction nationally.
“The recent election result will reinforce this momentum and means recent policy measures to support development will remain in place, most notably the reform of the managed investment trust framework to reduce the withholding tax rate for BTR investment to 15 per cent in line with other sectors,” Mr Burston said.
“As the year goes on, improving liquidity and prospects for further cuts in interest rates will continue to unlock capital markets and we expect the current momentum to be sustained.”
