Australian pension funds swoop on property as rival investors retreat

[SYDNEY] Some of Australia’s largest pension funds are boosting their exposure to global and domestic real estate, taking advantage of a broader investor pullback in the sector.

Australian Retirement Trust (ART), the nation’s second-biggest pension fund with A$370 billion (S$328 billion), has earmarked about A$6 billion for property investments over the next two years, Michael Weaver, general manager of mid-risk assets, said in an interview. Cbus, with A$114 billion, plans to lift its allocation by one percentage point over the next year to about 9 per cent, chief investment officer Leigh Gavin said.

Both pension funds are heading into the end of their financial year after a strong run in equity markets, with unlisted assets becoming more attractive as stock valuations look expensive and the interest rate outlook remains uncertain.

ART’s spending, funded largely from equity and fixed-income portfolios, will lift its real estate holdings to about A$25 billion. “We’re seeing other investors globally pull back from the sector and be less interested,” Weaver said. “We don’t mind being contrarian.”

Commercial real estate markets globally have been hit by higher interest rates, muted transaction activity and uncertainty over the economic outlook. The recovery remains uneven – some sectors continue to struggle, while housing-related assets are benefiting from supply shortages and logistics properties remain in demand from data centre operators and online retailers.

ART is targeting opportunities in Europe, the US and Australia, with a focus on residential build-to-rent and logistics assets. Rising construction costs have created chances to buy some properties at or below replacement cost, Weaver said.

About 6 per cent of ART’s high-growth and balanced investment options are invested in direct property, a share likely to rise to about 7 per cent. The fund expects real estate to perform well even if inflation stays elevated because landlords can pass through higher rents, while equity valuations look stretched.

Cbus, meanwhile, is looking mainly at Australian real estate after being underweight property for some time. Gavin said the fund isn’t diverting money from other asset classes, but spending cash generated by gains in equity markets.

“We’re obviously sitting on a bit of cash at the moment, so looking to just patiently deploy that into private markets,” he said, adding that large regional shopping centres are a target. “Generally speaking, the best time to buy property is when no one wants to.”

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Aware Super, which oversees A$235 billion, has also been adding to its property portfolio. The fund recently opened a build-to-rent apartment complex in Brisbane and last year acquired £500 million (S$857 million) in London office buildings through its partnership with UK-based Delancey Real Estate.

“We’ve been underweight for retail and office sectors for a number of years,” Michael Winchester, Aware’s head of investment strategy, said in an interview. “In the last 12 to 18 months or so, we’ve found that there’s some really good opportunities to buy good quality assets at really attractive prices.”

Aware is taking advantage of other large investors offloading assets, Winchester said.

“Some of the global investors are overweight real estate and they’re looking to sell, so some of the assets that we’ve purchased have been from other institutional investors,” Winchester said. “Our property team is pretty excited.” BLOOMBERG