Australia's resurgent economy has lured a string of offshore commercial property investors to its shores, many betting the rebound will underpin market competitiveness in the face of a soaring local currency.

Two German firms, property fund manager Deka Immobilien and asset manager Commerz Real (CBKG.DE), are eyeing Australia as an investment location. South Korea's National Pension Service and U.S. private equity firm Carlyle Group [CYL.UL] are reportedly in talks to buy a Sydney office building for A$700 million.

Deka Immobilien's Managing Director, Thomas Schmengler, said the firm, a unit of DekaBank [DSUGUD.UL], was attracted by the strong fundamentals of Australian property, and the fact that the nation's economic downturn did not become a recession.

Our Australian investments are fully hedged on the currency side, thus the exchange rate fluctuations do not influence our investment strategy, Schmengler said.

The Australian dollar hit a 15-month high this week, rising to more than 90 U.S. cents, from about 65 cents in January and raising the costs of hedging against further moves.

Research firm DTZ said the volume of commercial real estate sales in Australia grew by 1.2 percent to A$2.28 billion in the third quarter from the previous quarter, with foreign investors accounting for 22 percent of that, from 16 percent.

That trend looks set to continue as offshore companies look to finalise acquisitions. Hans-Joachim Kuhl, head of real estate acquisitions for Commerz Real, said talks were well underway for our closed-end real estate funds segment (in Australia), where commitments have a far broader equity basis.

Australia's property market is already tight with vendors holding on to their assets, hoping it is at or near the bottom and that limited supply will push up rents.

Still, some cash-rich investors have opted to stay on the sidelines, fearing currency movements may damage their returns.

Michael Birnbaum, a director at KanAm International, said the Australian dollar's recent volatility was a concern.

Australia was in our sights at one point, but we have found the currency play too much of a hurdle to investment, he said.

CB Richard Ellis (CBG.N) senior managing director Richard Butler said higher currency hedging costs would make some foreign investors less competitive when bidding properties here against local investors.

They can't pay the same price they used to be able to pay, Butler said. It's actually new deals that are the issue.

Australia Investment