Property remains a stable and attractive investment
What a brilliant city Sydney is and how fortunate we are to live here. As a migrant arriving 17 years ago, I was struck by its obvious natural beauty, as well as its cosmopolitan and sophisticated nature.
With the benefit of hindsight, the property investment market at that time was fragmented, still in the early stages of securitisation and experimenting with different ownership and management models. The market was as exciting as the move to Sydney.
Now, having weathered a few economic and political cycles, the market has matured and its shape has changed. Driven by inexorable cash inflows from compulsory superannuation contributions, the big super funds continue to aggregate as they seek economies of scale to remain competitive for their members. Fewer, bigger funds typically mean fewer, bigger investments are sought. Fewer individual investments require less analysis, less reporting and, consequently, cost less to manage at the fund level.
To remain relevant, property fund managers need to have scale, significant capital backing and a strong, ideally global, distribution capability.
This has seen ownership of the bulk of high-quality investment-grade property assets moving into the hands of large, well-capitalised superannuation funds, which tend to trade on strategic asset allocation imperatives rather than any pressing need to realise cash. This is likely to result in fewer transactions.
The stability offered by the physical property market during the global financial crisis also brought significant foreign investment into Australia.
In broad terms, the commercial space markets appear to be in equilibrium. This is particularly so for office and industrial, and perhaps less so for retail, which is undergoing profound change as the sector belatedly comes to grips with the impact of online retailing.
The conclusion is that, just as Sydney remains a stunning city in which to live, the Australian property investment sector remains attractive and sought after.