SUPERANNUATION funds, sovereign funds and high-net-worth private investors will be the big buyers of commercial real estate in the coming year as they direct cash away from volatile sharemarkets.
They will take the place of ASX-listed real estate investment trusts (A-REITS), which remain cash-strapped and in the consolidation phase as they focus on share buybacks to narrow the gap between their security price and net tangible assets value.
The funds will aim for a range of assets, with big groups already targeting properties such as Sydney's $750 million MLC Centre.
Melbourne-based private company Gandel has recently appointed former Macquarie Group director Kylie Rampa as its chief executive with an agenda to expand its asset base.
In the past year, the big-ticket commercial property purchases across Sydney and Melbourne have involved super funds and overseas sovereign funds.
These include Queensland Investment Corporation's $167 million purchase of the remaining half-share in 52 Martin Place, Sydney Commonwealth Property Office Fund's sale of 259 George Street, Sydney, to the Singapore Tay family for $395 million Boston-based Pembroke Real Estate's acquisition of 20 Martin Place for $95 million and the sale of Defence Plaza at 661 Bourke Street for $100 million to a German institutional investor, Real I.S. AG.
Peter Lambert, chief executive of Local Government Super, which owns many Sydney properties, expects 2012 to be the year of super funds.
"Clearly there is a lot of nervousness with the global equity markets at the moment," he said. "And with interest rates in Europe as low as they can go, it is difficult for super funds to support overseas bonds.
"That means the cash flow we get will be looking for other investments and that leaves us with property and infrastructure. We will be looking at both direct assets and taking securities in the A-REITs."
James Parry, Knight Frank's national director, predicts that wealth funds and large global pension funds from Canada, Singapore, Malaysia and Korea will be the most active players.
He said REITS would be divesting non-core assets to implement business strategies, such as share buybacks and development pipelines.
"While economic uncertainty exists around the globe, Australia remains a bright spot in an increasingly uncertain world," he said. "This is thanks to our high levels of transparency and the ability for foreign investors to invest large quantums of money.
"While the $A has strengthened substantially against the euro, sterling and $US, there are other currencies/countries which remain good value against the Australian dollar, including Canada, Switzerland and Singapore."
He noted that the commercial property market had recently experienced significant increases in volumes of private investors looking to invest $10 million-$80 million each.
"The majority of this has come from Asia, with about 20 per cent from Europe," he said. "Whilst the majority of these investors are focused on CBD assets, we are seeing them start to move up the risk curve and into the suburban markets."