The flood of capital across borders looking for commercial property shows no sign of abating, with $US407 billion ($561.4 billion) of deals struck worldwide during the first half of 2015, up 14 per cent, property agency CBRE says.
That made the first-half the strongest since 2007. And Australia was in the thick of it, as the fifth-most-popular market, with offshore investors snapping up $US10.3 billion worth of sales. CBRE says Sydney ranked fourth on the list of targeted cities behind London, New York and Paris, while Melbourne ranked sixth. 
It was a similar story in the third quarter, to   September, with offshore investors taking 56 per cent of the $8.6 billion in property traded during the quarter - the highest proportion recorded in the 10 years in which CBRE has tracked these numbers.
  September quarter highlights were Chinese sovereign wealth fund China Investment Corporation buying Investa Property Group's portfolio of nine office towers for $2.45 billion - the biggest direct real estate transaction in Australia's history - and Singapore's Ascendas Real Estate Investment Trust buying a 26-strong logistics facilities portfolio from fellow Singaporean Government Investment Corporation of Singapore (GIC) and Frasers Property for $1.1 billion. This was the largest industrial property portfolio ever offered for sale in Australia.
Given the current level of transaction activity, Australia is on pace to reach the record $29.6 billion in annual sales in 2014, says Mark Granter, executive managing director at CBRE Australia.
A big factor in that is China. Chinese capital flowing into global real estate markets has almost tripled since 2012, and Australia attracted almost 25 per cent of the $US6.5 billion in Chinese investment capital poured into global real estate markets in the first half of the year.
"The wave of money coming in is not only a Chinese story, it's not only an Asian story, it is a story about foreign capital being attracted to Australia," Granter says. "We've always had a lot of interest from European funds, particularly from Germany, and from Singapore and Malaysia. We're seeing increased interest come from America, but the Chinese interest is certainly a much bigger factor than ever before."

Attracted to high yields
All of these investors are attracted to relatively high yields for high-quality prime office assets, Granter says. "The yields are much stronger than in comparable gateway cities around the world. In Sydney and Melbourne you're probably looking at 'cap' rates (the capitalisation rate is the rate of return based on the income the property is expected to generate) of 5.5 per cent to 5.75 per cent, whereas in London and European markets you're probably talking 3 per cent to 3.5 per cent, Singapore is about 3.8 per cent, Tokyo is about 3.25 per cent and Hong Kong is sub-3 per cent. And with the Australian dollar having traded down from $US1.08 to 72&cent;, Australian assets have become much more attractive on the currency as well."
But Chinese investors have other, more subjective attractions, he says. "The Chinese interest mirrors their interest in our residential property, to a large extent. Their residential buyers and developers are active down here because they are keen to invest outside China, and from a lifestyle point of view, they really love Australia because of the quality of life, the quality of air, all the things that they don't have back home. But for commercial investors there is also the attraction of Australia's political stability and transparency - the legal system, the planning system, the titles system. They feel totally comfortable with investing here." 
Graeme Ross, managing director of real estate at Commonwealth Bank of Australia, says attractive yields, a cheap currency and a different cycle explain much of the strength of the Australian market, but he adds that the investment is coming from a "much broader base" than ever before.
"Pre-GFC, we were very used to seeing investors like the Canadian pension funds and some of the sovereign wealth funds, such as GIC and ADIA [Abu Dhabi Investment Authority]. Now we are seeing the global investment managers, UK investment managers managing European funds, big German investors, other big pension funds, property companies and REITs out of Asia. And then there is the newer wave of investors from Asia, private family companies and businesses with great wealth, and also high-net-worth individuals."

A cyclical place to invest
Global capital will "always be volatile," Ross says. "One of the things that will impact the market, just because there is so much capital around the world looking for a place to go, people can sometimes get a bit frustrated. Big investors want big investments, and if we can't satisfy that they will continue their global search. Australia has always been a cyclical place to invest. But I do think that just the sheer weight and volume that we've seen, and the broader nature of the parties investing, will provide a very robust base for our market going forward."
Where global investors once tended to prefer partnerships with established local players, there is now more willingness to buy assets directly, Ross says. "We're increasingly seeing Asian investors, in particular, who are prepared to buy assets individually. Asian investors like hotels, they like agricultural land, and we're also seeing residential developers, mainly Singaporean and Chinese, coming here and establishing an operation, actually hiring locally. So we're seeing a bit of a shift in approach."
Retail, however, is a slightly different market, he says. "Asian capital is predominantly interested in office, and then industrial, but they do understand that retail is a bit more sophisticated. It's more management-intensive, you effectively need local expertise to understand the retail environment as much as the retail property environment, and we see that reflected in the retail deals that are struck."