UniSuper head of property and private markets Kent Robbins says the stark disconnect between the performance of listed property and direct property warrants further investigation into which one reflects a more realistic outlook.

“Over the last 12 months, direct property returns are twice that of the listed property market, which causes us to reflect that in the last 12 months the listed market has seen something the unlisted market has not,” Robbins says.

He says he has a bias towards the listed retail property market. He believes the listed market may have over-stated the impact Amazon’s arrival in Australia will have on retail, while the unlisted market may have under-considered how tough the retail market is set to become.

“You have seen this really strong continuing demand for retail in the unlisted market,” he says. “Really strong returns out of unlisted retail. Yet the listed market…they’re down quite significantly over the last 12 months.”

Robbins says a similar dichotomy is playing out in reverse in the industrial sector, where listed industrial stocks such as Goodman Group are performing spectacularly well while unlisted industrial has been poor.

“The truth lies between the two, I think,” Robbins says. “The listed reaction, that everything is universally good in industrial and universally poor in retail, I don’t subscribe to, but I also don’t subscribe to the idea that the outlook for retail is the best it has ever been. [The theory is that] cap rates on some of these super-regional malls are the firmest they have ever been, therefore the outlook must be better than it’s ever been. That just doesn’t seem to be realistic.”

Looking to the next 12 months and beyond, Robbins says the free ride from firming cap rates as asset prices climb is probably mostly complete, and the ability of assets to generate income growth will become paramount.

“The easy days are over from my point of view,” Robbins says. “The ability for both assets and sectors to grow their income streams is going to become the determinant of outperform versus underperform. So for us we are not looking at it as sector-specific, retail versus office, but asset-specific, is the income in this asset sustainable, is it [resistant] to online retail or changing office demand patterns?”

He is also looking to de-gear the fund’s portfolio over concerns about cap rates.

“We think capital growth is just not going to be as prevalent, which means leverage is just not going to be the enhancer to returns it has been,” Robbins says. “And if the market turns then leverage is going to be your worst enemy.”

UniSuper is one of Australia’s largest super funds, with more than 400,000 members and over $65 billion in net funds under management. Robbins will be speaking as part of a panel titled ‘Where are we in the cycle?’ at the Investment Magazine 2018 Real Estate and Private Markets Conference, to be held at Crown Towers, Melbourne, February 27-28. For more information, see the event website or contact Emma Brodie +61 435 023 004, emma.brodie@conexusfinancial.com.au.

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