Nick Stephens

The $130 billion UniSuper is looking to cement itself as the “biggest and most reliable” player in the domestic real estate market following a flurry of industrial property acquisitions in the past 12 months.

Not only is senior property manager Nick Stephens unfazed by UniSuper’s relative lack of global investment in unlisted assets, he is in fact glad that his peers are increasingly overlooking the Australian market.

Since the beginning of 2024, the public-offer profit-to-member fund has already acquired one greenfield development site in Melbourne’s Deer Park and co-invested with industry fund investment vehicle ISPT in another near the new Western Sydney International Airport.

In an interview with Investment Magazine, Stephens says UniSuper is bucking the industry trend of going real estate hunting overseas because local opportunities are “sufficient” for its investment objectives.  

“I can’t comment on my peers but a lot of them who go offshore often cite the fact that there’s a lack of opportunity domestically,” he says. 

“I want them to continue to believe that, because then they’re not competing with us in the domestic market. 

“We’ve seen what’s happening to a lot of peers at the moment with their offshore assets – particularly in the US office sector which is really coming unstuck for them – so we’re certainly glad we’ve avoided those exposures.”

‘Counterparty of choice’

UniSuper currently has $8.3 billion in unlisted property and another $5.6 billion in listed property.  

Of the unlisted assets, $5.2 billion is in a directly owned portfolio which Stephens says is “market-leading”, as the fund started building it more than two decades ago. Its crown jewel is one of Perth’s busiest retail properties – Karrinyup shopping centre – which UniSuper has been invested in since the 90s and acquired outright in 2012, Stephens says. 

UniSuper’s real estate team consists of four investment professionals, since it prefers to run a lean team internally and leverage its external investment managers to deliver the more commoditised day-to-day property management services.

The fact that UniSuper has a strong reputation as a “counterparty of choice” for vendors is an important advantage, Stephens says, due to easy approval processes, with the fund being a domestic investor and the potential deals being entirely equity funded.

“Those [industrial property] acquisitions that we’ve been making, they are made at significant discounts to book value, because we’re one of the few investors in the market at the moment who has the execution capability and the appetite to be able to bring liquidity to what has been a relatively illiquid commercial property market over the last 12 to 18 months.” he says. 

“We get to a lot of opportunity [from vendors looking to sell] and we get to pick the eyes out of them, but we’re patient. High quality and good value are our key mantras when we’re looking to invest.” 

Asset quality as a mitigator

While the vacancy rate for logistics and warehouse property has seen a slight uptick across all five major capital cities since the first half of 2023, it still averaged 1.1 per cent during the second half of the year, according to research by CBRE. It is still one of the lowest – if not the lowest – in the world.

That is why the increase is not yet a cause for concern for Stephens. When asked at which point that vacancy rate will become worrying, Stephens says he’ll decide when rents start falling first.

“There is supply coming on in the near term, but what we’re finding [in] our portfolio, to the extent that there is expiry occurring, is that we’re still seeing significant renewal rates and increases in rents,” says Stephens.

“At the same time, a lot of portfolios with leases that are more than two or three years old are significantly underlet relative to current market rents.” 

Even if there were to be a broader slowdown, the best protection is to have quality assets to begin with, Stephens says. Continuing population growth, great motorways and arterial road connectivity, and flexibility for tenant use are all considerations UniSuper take to make sure its holdings’ quality remains top of the line.  

“Even if there’s a slowdown more broadly, acquisitions like [our latest] Burra Park, being literally adjacent to the entrance to the new Western Sydney airport, which will be Sydney’s biggest airport in the long run, again acts as a mitigate to softness that might be emerging,” he says.

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