Real estate yields on super funds' radar

SOVEREIGN and superannuation funds' direct investment in property is expected to increase in the coming year as managers seek higher-yielding returns.

SOVEREIGN and superannuation funds' direct investment in property is expected to increase in the coming year as managers seek higher-yielding returns.

While some individual pension funds might have real estate allocations as high as 15 to 20 per cent, in most countries it remains below 10 per cent on average.

Knight Frank head of research and consulting Matt Whitby said in Australia total superannuation assets increased by about $50 billion in the year to June 30, with the rate of savings set to receive a boost from the increase in compulsory contributions.

"With the allocation to property anticipated to rise above 10 per cent by 2014, there is significant scope for superannuation funds to boost exposure levels to real estate," Mr Whitby said.

Knight Frank's head of capital transactions in New South Wales, James Parry, said the investment market had structurally changed from a debt-driven market to equity. This was demonstrated by the buoyant and increasingly cross-border investment activities of the Canadian and Asian sovereign wealth funds, as well as the large Australian super funds.

"Property yields in most global markets continue to offer a significant premium over government bonds," he said.

"In addition, property offers relative stability of income against the current backdrop of low interest rates and unpredictable inflation."

But a survey by CBRE shows that prime office rental growth was strong in Perth but flat to negative in the east. The national average growth rate was 3.9 per cent, with Perth at 13 per cent, Sydney at 3.2 per cent, Melbourne 3.4 per cent and Brisbane -0.1 per cent.

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