Australian pension fund slashes office tower values by up to 20%

AUSTRALIA’S second-largest pension fund has slashed the value of its local office assets by as much as 20 per cent as commercial property woes hit the country’s biggest landlords.

Australian Retirement Trust (ART), which manages A$240 billion (S$216.2 billion) of assets, said its Australian offices have seen “material downward movements ranging between 5 per cent and 20 per cent”, in an e-mailed statement.

Unlisted property comprised almost 9 per cent of its default pension offering at the end of last year, or about A$4.3 billion.

After a long buying spree, global property owners and lenders are grappling with changes in how people work and shop in the wake of the pandemic.

While the MSCI World Real Estate Index is down 27 per cent since the start of 2022, most commercial assets are privately held, and valuations can take months or even years to respond to shifts in interest rates and changes in supply and demand. 

ART has been gradually cutting its exposure to both office and retail properties. Its concerns grew as the pandemic accelerated trends towards online shopping and working from home.

Cbus, a A$73 billion pension fund, has written down some of its commercial real estate properties by as much as 10 per cent, according to press reports last week.

Australia’s A$3.5 trillion pension sector is also facing increased regulatory scrutiny over unlisted assets, amid concerns that valuations remained high even as the value of listed property assets fell.

Many funds have increased their holdings of private assets both locally and abroad in recent years. 

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“We independently value our property assets regularly,” Andrew Fisher, ART’s head of investment strategy, said in the statement.

“Our recent experience has seen varied levels of value reductions depending on the impact of current market factors relative to the underlying fundamentals of the property.”

ART does not plan to exit the office sector entirely, and still sees opportunities in prime properties, added Fisher.

Its existing investments include a stake in a technology park in the inner Sydney suburb of Redfern, which lists major lender Commonwealth Bank as a long-term tenant. 

The falling office values did not largely impact the annual performance of ART’s default pension fund, which posted a 10 per cent return for the year till June, Fisher said in an interview on Monday (Jul 3).

“It’s been second-tier office buildings where you’ve seen the most meaningful downward valuations,” he said.

“Industrial property is still holding up quite strongly at the moment, so that’s been one of the bright spots in the property portfolio.” 

While asset valuations overseas had also been hit, ART had multiple strategies abroad including residential properties and holiday parks, he said. BLOOMBERG