Australian superannuation funds have been aggressively investing in domestic properties, accounting for 40% of the capital flowing into Australia’s real estate industry in the first half of the year.
During this period, the super funds allocated A$11.9 billion ($8.6 billion) into the Australian real estate sector, according to Australian Prudential Regulation Authority (APRA) data released on August 25.
Over the same period, global investors allocated A$29.6 billion into Australia’s real estate, according to RCA, up from A$23.1 billion in the same period in 2020.
Troy Rieck, CIO of LGIAsuper, told AsianInvestor the fund’s search for yield was prompting it to increase its allocations to real estate development projects. “Property development activities will likely be a bigger share of returns going forward,” he said.
Growing interest from investors in Australia had enabled Aware Super to accelerate the pace at which it had been able to sell managed fund holdings and redeploy into direct investing, according to Alek Misev, portfolio manager for property at Aware Super in Sydney.
“Liquidity has come back quicker [than expected] locally,” he said, adding that over the last year, the fund has been selling off retail and office assets and allocating to industrial, multi-family, and retirement living.
Australia scores well on Aware Super’s three leading investment themes: ageing populations, young generations, and technology – guiding its allocation over the next five years.
FROM STRENGTH TO STRENGTH
Charter Hall, Australia’s second largest real estate manager, meanwhile reported A$5.3 billion of net inflows during the first half of the year, in its end of year results published on August 23. Institutional investors accounted for A$3.5 billion of the total, with $500 million from Australian superannuation funds and $1 billion from global pensions funds, and the remainder from sovereign wealth funds, insurance companies, and other institutions.
According to data company Realfin, Charter Hall had raised $9.8 billion in the last five years, the sixth most of any global real estate manager.
Two billion dollars of Charter Hall’s A$5.3 billion inflow in the year to June went into the Charter Hall Prime Industrial Fund (CPIF), which now has A$10 billion in assets under management (AUM).
Russell Proutt, chief financial officer of Charter Hall, told AsianInvestor that Singapore and Japan were two major sources of Asian flows to its flagship logistics funds, followed by South Korea, with flows also coming from Thailand and Malaysia.
Proutt said that roughly A$3 billion of the A$10 billion fund were either earmarked or committed to developing logistics assets.
Besides Australian superannuation funds, other investors are also increasing allocations to Australian real estate. For instance, Germany’s Allianz Real Estate currently has €1.3 billion ($1.5 billion) invested in Australia, a figure that is set to increase.
“We continue to look for office opportunities in 24/7 cities such as Sydney and Melbourne; logistics opportunities on the eastern seaboard; and purpose-built student accommodation (PBSA) opportunities in top-four cities. Institutionalisation of the Australian multi-family sector is gaining traction, and we are in the initial phase of assessment,” said Rushabh Desai, CEO of Allianz Real Estate’s Asia Pacific business. The opening of the company’s Australia office was delayed by Covid last year, and a revised date has not yet been announced.
Investments for the company include the June 2020 joint venture with Charter Hall, which led to acquiring supermarket group ALDI's A$648 million Australian logistics portfolio.
Meanwhile, Joseph Lee, co-chief executive and president of the Seoul-based real estate specialist Igis Asset Management, said the fund was increasing its allocation to Australia’s office sector via a fund of funds, as well as looking at its first logistics investments in the country.
“Australia has been a strong defensive market during Covid, it has good fundamentals, and the market has already started to recover,” he told AsianInvestor.
Louise Kavanagh, managing director and Asia Pacific CIO at Australian company Nuveen Real Estate, told AsianInvestor that the fund continued to favour well-located Grade A offices in Sydney, where supply is limited and demand from tech or newly emerging sectors is strong.
“Pro-cyclical government policy [in the form of] wage support, the containment of Covid-19, and rapid economic recovery especially in the labour market have helped to cement institutional investment interests [and] push prices higher,” she said.