The allure of Sydney’s skyscrapers has never been greater.
Foreigners are plowing record sums into the city's office market, lured by higher yields than elsewhere, and now own almost one in every five downtown buildings.
Source: Savills, CBRE
In the latest indication of strong overseas demand, sovereign wealth funds from China and the United Arab Emirates are said to be vying with Blackstone Group LP, Brookfield Asset Management Inc. and South Africa's Redefine Properties Ltd. for a A$9 billion ($6.6 billion) portfolio of Australian buildings owned by Investa Property Group.
Foreign entities now hold 19 percent of office space in Sydney's central business district, up from 15 percent five years ago, said Adam Woodward, national director for capital markets at Colliers International. Across Australia, foreign investors accounted for 25 percent of all office transactions in the last five years and bought a net A$4.5 billion in office property in 2014, according to David Rees, head of research for Australia at JLL.
"They tend to be more prominent in the big trophy assets," Rees said. "They are willing to pay more than Australian investors are willing to pay."
Chinese buyers have significantly increased their purchases Down Under, accounting for 25 percent of all outbound foreign property investment sent to Australia in the first quarter, according to CBRE Group Inc. Sydney's central business district was offering prime yields of 5.7 percent in the second quarter, down slightly from 5.95 percent in December, according to CBRE.
Investors from China are also on course to take out 20 percent of new homes in Australia in 2020, up from 15 percent now, Credit Suisse Group AG said in May. Home prices in the city have been on a tear, jumping 43 percent since May 2012, and prompting central bank Governor Glenn Stevens to call the market ‘‘crazy."
As for the commercial market, foreign buyers aren't going to go away.
"It's a very liquid market and with the depth and breadth of international buyers, it's not going to end anytime soon," said Richard Butler, senior managing director for international investments at CBRE in Sydney.