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."