We believe a portfolio which has exposure to high quality,
large scale international assets in global gateway cities, coupled with
exposure to core Australian commercial property, improves diversification and
provides the potential for better long-term returns. As a long-term investor,
we also look for opportunities to add value to assets by reinvestment and redevelopment.
The King’s Cross redevelopment in London is a prime example of this strategy.
Since 2013, we’ve been expanding our in-house capability and
investing more directly. During this time, AustralianSuper members have become
part-owners of the Ala Moana Shopping Center in Hawaii, King’s Cross in London,
Centre: MK also in the UK, and a portfolio of office buildings in Boston and
How supportive are current economic conditions for the property sector
and are there any potential risks on the horizon?
Continuing economic growth in Australia and the United
States is supporting direct property, particularly in the office and industrial
sectors in those markets, and multifamily residential properties in the United
Moderating economic conditions in the UK have impacted some
property market sectors such as retail, while the office and industrial markets
are performing well. The retail property market is being impacted by lower
demand for physical retail space from tenants due to the continued growth of
e-commerce and changes to how consumer’s shop.
We are mindful of geopolitical risk around the world, which
can impact the demand for all types of real estate. Like share markets, property
markets can react to government policies on immigration, tax, interest rates,
There’s been a lot of news coverage about a potential housing market
downturn in Australia, with prices already falling. What does this mean for
AustralianSuper’s property investments?
We don’t expect the falls in house values to impact the pricing
of commercial property sectors. Pricing and valuations of commercial property are
determined by investor expectations of future cash flows, and return
requirements which are not related to residential property.
What’s the outlook for AustralianSuper’s property portfolio?
AustralianSuper invests in multiple property sectors, either
by acquiring properties directly or investing via unlisted funds. The main
sectors we invest in are office, retail and industrial with the key geographies
being UK, USA and Australia.
The outlook for the office and industrial market is
positive, driven mainly by strong tenant demand, controlled supply and
relatively high occupancy levels in most markets. Industrial property has
experienced strong demand for space due to increasing logistic requirements as
a result of increasing consumer consumption and e-commerce sales.
Retail property is being impacted by increasing online
retail spending which is affecting retailer profit margins and the demand for
retail space. We believe that the largest regional shopping centres are best
placed to withstand the effects of online sales.
Property returns move in cycles. Currently, we’re in the
mature phase of the growth cycle as values have generally been increasing since
the global financial crisis and property rental yields and return expectations
are relatively low compared to historical levels. Conditions in local real
estate can vary from market to market. For example, if underlying income growth
from a property is strong, we can expect values to continue to grow.
Generally, we think property valuations and returns will be
more moderate in future years due to the maturing property cycle and rising
global interest rates. However, with continued economic growth and supportive
interest rates, the majority of markets that we monitor are in a relatively
strong supply / demand position and cash flows from well leased properties are
As long-term investors, we look at returns across the entire
economic cycle as these are what are going to matter the most for members.
AustralianSuper members can gain exposure to direct property through our PreMixed options or the DIY Property option. We recently announced some changes to the Property option to better manage the liquidity risk for members. Find out more.