AUSTRALIA'S comparatively strong economy should drive continued foreign investment in our property market despite the uncertain international outlook, according to Colliers International managing director of investment services, John Marasco.
Mr Marasco said offshore investors had committed about $3.7 billion in Australian property markets in just the past six months. ''Local investors are also becoming more active, with pension funds looking to increase their allocations to commercial property.
''Investors will remain cautious, with forecasts suggesting the weight of capital chasing quality assets will lead to a further tightening of premium and A-grade yields by as much as 25 basis points in the next six months.''
Mr Marasco said the secondary-grade market would continue to experience a softening of yields as investors' appetite for risk remained soft and owners placed more assets on the market as funding pressures increased. Despite this, opportunistic buyers would continue to target underperforming assets to take advantage of the potential future upside.
''Foreign investment from sovereign wealth funds, pension funds and REITS, particularly from Asia, is forecast to remain high as investors chase secure yields of between 6.5 per cent and 7.5 per cent in Sydney, compared with 4 per cent to 6 per cent returns in Hong Kong, Singapore, London or New York,'' Mr Marasco said.
''For the first half of the new financial year, we expect an increasing battle for core and core-plus assets across all asset classes.''
In the wider retail sphere, Mr Marasco said the going was tough: ''While household spending has been rising, expenditure in the traditional retail sector has been lagging other areas of consumption.
''With continued short-term pressure on the sustainability of occupancy costs, property owners will be focusing on tenancy mix and maintaining occupancy levels in their shopping centres, with growth in specialty rents limited.
''The stability of retail property, however, remains an attractive proposition for many investors as they look beyond the current challenges being experienced in the broader retail sector.''
Mr Marasco said the property sector would continue to be defined by the two-speed Australian economy in the year ahead. ''This will continue to present challenges,'' he said, but the growth from the mining and resources sector would continue to stimulate the broader Australian economy.