Foreign cash in city office deals, Morgan Stanley finds

Across office, retail, and industrial, Morgan Stanley found that 40pc of property transactions in the past decade involved an offshore acquirer.

Morgan Stanley has weighed up the amount of commercial property in Sydney and Melbourne bought by foreigners. Picture: AAP

Morgan Stanley has weighed up the amount of commercial property in Sydney and Melbourne bought by foreigners to gauge the potential impact of Foreign Investment Review Board decisions like the recent blockage of the Probuild deal.

Across office, retail, and industrial, Morgan Stanley found that 40 per cent of property transactions in the past decade involved an offshore acquirer. The biggest influence was in office transactions, where 51 per cent were from foreign entities.

In office property, North America was the biggest foreign buyer. In industrial property, China was the biggest identified buyer among foreign groups, although a greater number of transactions had unknown origins.

“It’s far too premature to draw any conclusions as to what recent developments mean for bidding tension in future deals, but we believe it is fair to say that foreign capital does contribute a material percentage to property transactions, and therefore influences valuation of our coverage universe,” lead equity analyst Simon Chan wrote in a client note.

“Real estate valuations are in part driven by transactional evidence, such that the metrics of one deal are applied to existing buildings, and also stocks, to help determine a value.

“Interest from offshore investors into Australia is also a driver for asset managers such as Charter Hall, Goodman and Lendlease, given their managed funds are increasingly sourcing capital from global investors.”

Investment bankers have warned the federal government’s surprise move to block China State Construction’s $300m buyout of Australian-based builder Probuild on security grounds, revealed this week, will send a warning to all foreign investors looking to bid for Australian assets.

The move came as stricter new laws on foreign investment in Australia came into force from January 1. Under the rules, any bids for assets and companies linked to national security need to go to the FIRB for approval.

The Property Council of Australia has said the industry would be closely reviewing the Probuild decision for its longer term implications for investment.