Weekly Update 31/1/2022

31 January 2022

Welcome to this weeks Property News.

We continue to see evidence of a weight of capital chasing scarce property in Australia. Agents continue to report multiple qualified parties participating in on market campaigns with new entrants emerging from around the globe as the hunt for inflation-proof real assets intensifies.

Australian Super Funds are among those hunting for direct assets. According to APRA, the net contribution flows to Australian super funds from employees for the year ending September 2021 was $53.9 billion, with an average of 9% being allocated to the property markets, the sector is contributing $4.8bn of fresh capital each year. Added to this is the extensive offshore and private capital markets and it is easy to see why real estate yields are yet to respond to the threat of rising interest rates.

The significant investment capacity of our super funds is also a key factor shaping the market going forward. In previous decades the likes of AMP, Colonial, and Lendlease led the property investment industry managing the bulk of superannuant money in large unlisted funds. In those days, investors had limited influence on investment decisions, fees or strategy, but nowadays the tables have turned and the large unlisted fund managers face a very different set of investors. The recent changes in AMP Capital’s wholesale funds is a case in point.

Within a few short years, the large and fragmented superannuation industry has been forced to form a handful of mega funds. Currently, four “mega funds” holding more than A$100bn in assets under management exist currently exist; AustralianSuper, Aware Super, UniSuper and QSuper. We expect another one or two to join them in the coming year. These Funds are of sufficient scale to build direct investment teams and together their influence on the market will bring further changes to the property industry. Backed by solid research, the investment strategy of the mega funds will influence whole sectors of real estate as the need to deploy capital will shift their focus toward quality assets in non-core markets. Healthcare, Self Storage, Build to Rent, Residential Communities and Social Infrastructure will all play a greater role in the investment landscape.

The ability to access quality investment opportunities of sufficient scale will become the key ingredient that each of the mega funds will seek. Privatising listed vehicles is always a possibility however gaining control without overpaying is a dangerous game for regulated super funds who must act in members interests. Instead, partnering with or acquiring private groups with existing platforms, pipeline and capability will become an important strategy for the mega funds.

As the mega funds build direct investment capabilities, the opportunities for existing large scale investment managers to attract local capital will diminish and their ability retain quality staff will also suffer. But where there are challenges there is always opportunity.

If you have any news, information or research reports you’d like us to share with the market, please feel free to send me an email at info@propertymarkets.news or simply submit an article for us to review here.