Super funds chase higher yielding property

INVESTMENT in direct property by sovereign and superannuation funds is likely to increase in year ahead as managers chase higher-yielding returns.

INVESTMENT in direct property by sovereign and superannuation funds is likely to increase in year ahead as managers chase higher-yielding returns.

While some pension funds may have real estate allocations as high as 15 to 20 per cent, property allocations in most countries remain below 10 per cent on average.

The most recent deal was by the Canada Pension Plan Investment Board in the $1.4 billion shopping centre joint venture with AMP Capital and Westfield.

The head of research and consulting services for Knight Frank, Matt Whitby, said total superannuation assets in Australia increased by about $50 billion in the to June 30, with the rate of savings 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.

The head of capital transactions, NSW at Knight Frank, James Parry, said the investment market had structurally changed from a debt driven market to equity, demonstrated by the buoyant and increasingly cross-border investment activities of the Canadian and Asian pension and sovereign wealth funds, as well as the large local super funds.

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

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

A new survey by CBRE shows that prime office rental growth was strong in Perth but flatter along the eastern seaboard. 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 at minus 0.1 per cent.

In the Australian Office MarketView report for the third quarter the head of research at CBRE, Stephen McNabb, said signals were mixed and momentum remained subdued.

He forecast that prime office rental growth would soften over the next 12 months with Perth remaining the growth engine.

In contrast, the head of industrial at Jones Lang LaSalle, Michael Fenton, said the slowdown in construction has led to a tightening of forward supply of warehouses at a time when demand is rising for distribution centres.

"This may lead to a fresh wave of pre-lease and design-and-construct commitments from businesses needing to meet organic growth requirements, or seeking to drive efficiencies by vacating obsolete industrial space," he said.

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