Next year expects big buyers of commercial real estate to avoid sharemarkets.
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.''
Frequently Asked Questions about this Article…
Why are superannuation funds and sovereign wealth funds expected to buy more commercial real estate?
The article says big buyers such as superannuation funds, sovereign wealth funds and high-net-worth private investors are moving cash away from volatile sharemarkets. With low interest rates in Europe and limited overseas bond returns, these funds are targeting property and infrastructure as alternative income and diversification options.
What does increased buying by big funds mean for ASX-listed real estate investment trusts (A-REITs)?
According to the article, many A-REITs are currently cash‑strapped and in a consolidation phase. They’ve been focusing on share buybacks to narrow the gap between security price and net tangible asset (NTA) value, and may divest non-core assets to implement business strategies and development pipelines.
Which types of commercial properties are attracting the most interest from large investors?
The piece highlights CBD (central business district) assets as prime targets — for example, Sydney’s $750 million MLC Centre — but notes buyers are also starting to move up the risk curve into suburban markets. Big-ticket transactions in Sydney and Melbourne (Martin Place, George Street, Bourke Street) show the focus on major office and CBD assets.
Are foreign investors active in Australian commercial property, and which countries are involved?
Yes. The article reports strong participation from overseas investors, especially from Asia, with significant activity from wealth and pension funds in Canada, Singapore, Malaysia and Korea. It also cites examples of transactions involving Singaporean buyers, a German institutional investor and a US-based real estate firm.
How are global equity market volatility and interest rates influencing property investment decisions?
The article explains that nervousness in global equity markets and very low interest rates in places like Europe make overseas bonds less attractive. That drives fund managers to reallocate cash toward tangible assets such as property and infrastructure for yield and stability.
What role are private companies and local super funds playing in commercial real estate buying?
The article notes Melbourne-based private company Gandel is expanding its asset base (with a new CEO appointment), and Local Government Super — which owns many Sydney properties — expects super funds to be significant buyers, signaling an increased role for domestic institutional investors.
How much are private investors spending on commercial property purchases?
The article states private investors have recently been investing in lots sized about $10 million–$80 million each, with the majority of that capital coming from Asia and about 20% from Europe.
What might everyday investors in property securities expect from this shift in buyers?
Based on the article, everyday investors could see A-REITs divesting non-core assets, pursuing share buybacks and development pipelines, and increased competition from large institutional and foreign buyers for prime CBD assets. The article also notes some funds may acquire direct properties while others take securities in A-REITs.
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