Axa Real Estate Investment Managers, a unit of Europe’s second-largest insurer, will seek to buy as much as A$500 million ($483 million) of Australian office buildings over the next two years to capture higher yield.
Axa Real Estate, which manages 48 billion euros ($66 billion), plans to join hands with as many as three investors, with equity of as much as A$300 million, said Frank Khoo, global head of Asia. The group will buy about four “A-grade” office buildings in Sydney and Melbourne and fund the remaining amount with debt, he said.
Australia’s “attractive yield levels” relative to other Asian markets and its properties with long-term leases are drawing investors, with the country and China accounting for more than half of cross-border property acquisitions in the second quarter, CBRE Group Inc. said in a report. Axa Real Estate last month partnered with local asset manager Eureka Funds Management to buy the New South Wales state headquarters of Australia Post in Sydney for A$168 million, on behalf of an “ultra high net worth” client based in Singapore, Khoo said.
“Investors are looking for a stable, long-term income stream, and in Asia there are only two real markets that can provide you with breadth and depth; that’s Japan and Australia,” Khoo said in an interview in Singapore yesterday. “For a developed economy, Australia is still growing strongly.”
A-grade buildings in Sydney and Melbourne are larger than 10,000 square meters (107,639 square feet), with each floor having areas larger than 700 square meters, according to industry group Property Council of Australia.
Axa Real Estate is targeting a total return of more than 9 percent for its Australian investments, including currency hedges, Khoo said. It also plans to establish a presence in the country by acquiring a local asset manager, he said, declining to provide further details.
The company, which now manages about $350 million in Japan and $150 million in Australia, will continue to buy properties in the two countries both with its own capital and with funds from overseas investors, Khoo said.
In Japan, Prime Minister Shinzo Abe’s efforts to stoke the economy and the 2020 Tokyo Olympics will boost tenant demand, he said. Axa Real Estate, which bought two central Tokyo office towers for 10 billion yen ($102 million) this year, plans to double its investments by the end of 2013, Hidetoshi Ono, the head of Axa’s Japan Core Fund, said in July.
“There’s not much supply, so demand will increase,” Khoo said yesterday. “In the short-to-medium-term, we expect rents to pick up and vacancies to fall.”
Axa Real Estate has lent $120 million from Axa Life Japan on local commercial properties, and has another $250 million to deploy in the next two years, Khoo said. In the future, it plans to raise capital from other investors to provide real estate loans in Japan, he said.
Axa Real Estate is also seeking to raise as much as $600 million over the next two to three years in South Korea to invest in properties in Europe and Asia, Khoo said. The expansion will follow the purchase of Ropemaker Place in London in March for 472 million pounds ($763 million) on behalf of Axa France, Hanwha Life Insurance Co. and China’s State Administration of Foreign Exchange, Khoo said. SAFE manages China’s $3.66 trillion of foreign currency reserves.
Axa Real Estate plans to set up an office in Seoul early next year as its fundraising plans there progress, he said.