SUPERANNUATION and sovereign funds and high net worth private investors are to be the big buyers of commercial real estate in the coming year as they direct cash away from the volatile sharemarket.
The funds will take the place of real estate investment trusts (REITS), which remain cash-strapped and are focusing on share buybacks as they try to narrow the gap between their security prices and the value of their assets.
Investors will target a range of assets, with a number of funds already looking at properties such as the $750 million MLC Centre in Sydney. Industry SuperFunds and Valad, now run by the Blackstone Group, have been touted as possible buyers of the MLC Centre.
The Melbourne-based Gandel family has appointed former Macquarie Group director Kylie Rampa as its chief executive, with an agenda to expand its asset base.
In the past year, big-ticket commercial property sales in Sydney and Melbourne have been undertaken by super funds and overseas sovereign funds.
These include Queensland Investment Corporation's $167 million purchase of a half share in 52 Martin Place, Commonwealth Property Office Fund's sale of 259 George Street to the Tay family of Singapore for $395 million, and Boston-based Pembroke Real Estate purchase of 20 Martin Place for $95 million.
Peter Lambert, chief executive of Local Government Super, which owns many Sydney properties including 120 Sussex Street, said he expected next year to be the year of the super fund.
"Clearly, there is a lot of nervousness with 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 direct assets and taking securities in the REITs."
He said it was not possible for super funds to keep all investment in "cash alone".
James Parry, Knight Frank's national director, and head of capital transactions, also predicted that wealth funds and large global pension funds from Canada, Singapore, Malaysia and Korea would be the most active in the months ahead.
REITS, he said, would shed non-core assets to focus on buybacks and development plans.
"While economic uncertainty exists around the globe, Australia remains a bright spot in an increasingly uncertain world," Mr Parry said. "This is thanks to our high levels of transparency and the ability for foreign investors to invest large quantums of money."
There had been significant increases in private investors wanting to invest between $10 million and $80 million each in the commercial property market, Mr Parry said.
"The majority have come from Asia, with about 20 per cent from Europe. Interestingly, we've not experienced any significant private investment demand from the Americas. While 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 and sovereign funds expected to be major buyers of commercial real estate?
The article says many superannuation and sovereign funds are directing cash away from the volatile sharemarket. With low overseas bond yields (notably in Europe) and nervous global equity markets, these funds are looking for higher-return alternatives — pushing them into commercial property and infrastructure.
How are REITs responding to the shift of capital toward super funds?
According to the article, REITs are generally cash‑strapped and are responding by focusing on share buybacks and development plans. Many REITs are also expected to shed non‑core assets as institutional buyers such as super funds step in.
What kinds of commercial assets are institutional buyers targeting right now?
The piece notes funds are targeting a range of assets, including high‑profile CBD office towers. A cited example is interest in the $750 million MLC Centre in Sydney. Super funds are looking at both direct property assets and infrastructure, as well as taking securities in REITs.
Can you give examples of recent large commercial property deals that illustrate this trend?
Yes. The article lists several recent transactions: Queensland Investment Corporation bought a half share in 52 Martin Place for $167 million; the Tay family of Singapore bought 259 George Street from Commonwealth Property Office Fund for $395 million; and Boston‑based Pembroke Real Estate purchased 20 Martin Place for $95 million.
Which investors and countries are most active in buying Australian commercial property?
The article identifies industry super funds, wealth funds and large pension funds from Canada, Singapore, Malaysia and Korea as likely active buyers. It also notes strong private investor demand coming mainly from Asia, with about 20% from Europe.
How are private investors and family offices changing their approach to commercial property investing?
Knight Frank’s national director noted a significant increase in private investors looking to invest between $10 million and $80 million. Many of these buyers — often from Asia — are moving up the risk curve and starting to consider suburban markets as well as CBD assets.
What did industry figures mean by calling the next year 'the year of the super fund'?
Peter Lambert of Local Government Super suggested that, because global equity markets are uncertain and overseas bond yields are unattractive, super funds will deploy more capital into property and infrastructure. The phrase reflects an expectation that super funds will be major buyers in the commercial property market.
Does the article say super funds will buy property directly or via REITs?
The article states super funds will pursue both routes: they will look at direct assets (buying property outright) and also take securities in REITs, depending on opportunities and strategy.
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