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Office assets set to outperform

OFFICE assets will outperform retail property in the medium term, while overseas investors continue to seek assets in defiance of the strong currency, according to AMP Capital.

OFFICE assets will outperform retail property in the medium term, while overseas investors continue to seek assets in defiance of the strong currency, according to AMP Capital.

The year ahead will also be dominated by the volatile economies of Europe and a forecast slow upturn in the US.

Andrew Bird, director and chief investment officer at AMP Capital, said investors remained cautious and it was difficult to predict the outcome of debt problems in Europe and the US.

He said during the global financial crisis, governments bailed out the private sector, but, as evidenced in Europe, the tables had turned, though it was doubtful the private sector would bail out any government.

"The share market and bond market are giving mixed signals, which has flowed through to the property investment market," Mr Bird said. "It is difficult to see the Republicans doing President Obama any favours next year, which will make it tough in the US."

Mr Bird said the group's wholesale and direct portfolios had seen an increase in funds as overseas investors sought refuge in bricks and mortar against the backdrop of volatile markets.

He expected landlords would look to redevelop assets, such as upgrading offices and expanding shopping centres, rather than buying at inflated prices.

Chris Judd, AMP Capital's head of property funds management, said superannuation funds were showing a growing preference for investment in direct property.

"We have had a relationship with UniSuper for many years and other similar funds are also active," Mr Judd said.

"There is $15.9 billion in our Australian and New Zealand funds under management and we plan to increase that through selective acquisitions."

Mr Judd said bank and other lenders remained risk averse, which would keep a tight rein on raising cash in the coming year.

He said while property owners were looking for assets, it was unlikely to trigger an aggressive round of takeover activity.

On the retail side, Louise Joslin, AMP Capital's fund manager, said the group's Australian Core Property Portfolio would retain its weighting to retail, which was still outperforming office in returns.

"Shopping centres did not reduce in value as much as the office sector, and while it's tough ... sales are still high at many of our centres," Ms Joslin said.


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