Melbourne has overtaken Sydney as the best prospect in the Asia Pacific region for both investment and development according to the latest real estate forecast by the Urban Land Institute and PwC.
Factors helping Melbourne nab the top spot include its constrained office supply pipeline; a solid yield spread over the cost of debt and sovereign bonds, along with strong prospects for rental growth.
The latest ‘Emerging Trends in Real Estate Asia Pacific’ report, which takes in 22 cities across the Asia Pacific region, offers insight on real estate investment and development trends in real estate finance and capital markets, along with trends by property sector and metropolitan areas.
While Melbourne outstripped cities Singapore and Sydney, the report found the Victorian capital was actually the weakest Australian market in regards to residential property, with house prices turning down in January and ongoing falls this year.
CoreLogic data recorded a drop of 4.9 per cent for 2018 through to October.
Sydney ranked third for investment and third for development, the report described the harbour city as “still a favourite of global investors due to relatively high returns”.
The report described rental growth for this year as “phenomenal” in both Sydney and Melbourne capital cities.
“Offering compressed yields but still attractive by international standards, running at around 4.5 per cent for prime office and retail, and 5.5 per cent for good industrial space,” the report said.
While Sydney is Australia’s largest office market, the report said it’s also the default option for both domestic and international investors.
“Buyer competition helps sustain pricing, while low vacancies and growing demand suggest rents will continue to rise,” the report said.
While Sydney’s home prices have fallen for more than a year, its housing stock remains some of the least affordable in the world.
Singapore came in second place in the top five markets for investment and development in 2019, with Tokyo in fourth spot, and Osaka in fifth place.
ULI Australia Chair Susan McDonald said the survey results reveals that investors in the region are looking to Australia’s largest cities for investment opportunities.
“Both Melbourne and Sydney are core markets at heart but we are seeing that with the number of investable assets significantly lower than in Japan there is strong competition to place capital, especially with so many international players looking to buy.”
The report is based on the opinions of 350 real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.