Brighter Super chief investment officer Mark Rider said it’s time to be opportunistic in commercial real estate, as adjustments in capitalisation rates and real interest rates start to come through.
The Queensland-based super fund is among asset owners that are tentatively pivoting back to real estate, after many paused or reduced their programs in the past few years due to beaten-up asset valuations. Real estate was the biggest common detractor of performance for super funds and sovereign wealth funds in the 2024 financial year.
Rider joined the $32 billion fund at the beginning of 2024, and he said that by then the fund was already seeking liquidity out of office and retail assets.
“Our approach has been really to pretty much stay out of it [real estate]. We did a little bit of investment in industrial but very limited,” he told the Fiduciary Investors Symposium in Healesville, Victoria.
“But I think it’s time for us to be opportunistic.
“There’s going to be opportunities thrown up through the whole [adjustment] process. But we are looking at some of the non-traditional areas.
“We made our first investment in a data centre in property, and also continuing to look at industrials and logistics as well.”
BlackRock head of real estate asset management for APAC, Alan Retford, said office property remains one of the most favoured sectors in Asia, despite all its woes.
“There’s still some pain to be had in offices where we’ve got elevated vacancy, [where properties] are not so centrally located, are not located close to amenities and in some respects reaching obsolescence because they’re not keeping up,” Retford said.
“Investors will follow where that tenant demand is.
“Over time though, as we know, that will start to work itself through some of the less core markets, and as opportunistic investors come into the market as well, and see some of these assets which have been mispriced.
“You’ll see interest in those start to come back, but that’s probably 6 to 12 months away, in my view.”
Residential uncertainties
Frontier Advisors senior consultant Shrabastee Mallik said the Australian real estate market has room to develop a lot more sectors in-depth. However, the nation is falling behind other countries on government support in supporting some of these areas. For example, popular overseas niches such as life sciences are not institutionalised in Australia at all, she said, and nor is residential real estate.
“We’ve used that word for a long time, you know, [saying] residential is still in its nascent stages,” Mallik said.
“When is that going to come out? Without that government support, these sectors I don’t think are going to institutionalise at the same pace as they have overseas.”
Both major political parties in Australia are eyeing superannuation assets to help ease the housing crisis in preparation for the next election, though with different roles in mind for funds. The incumbent Labor government wants to mobilise institutional investments into social and affordable housing alongside its $10 billion Housing Australia Future Fund (HAFF), while the Coalition is controversially proposing to allow early access to super for first-home buyers.
Housing policy has always been a contested political topic and Mallik said investors’ big fear is that – regardless of which housing policy gets enacted – there will not be future bipartisan support.
“We saw that in 2011 when the Labor government at that time did introduce housing policies, but with the election of the subsequent Liberal government, they fell away,” she said.
“We talked a lot about the US and how there’s very divided views from a political perspective. But housing is one thing that is always going to have bipartisan support in the US, so that will continue on its merry way, whereas in Australia, we still have to worry about them.”
Rider said Brighter Super is still wrapping its head around residential real estate, but being a smaller fund means it could afford to look at mid-sized projects that other mega funds cannot.
“Traditionally, it hasn’t been a market – the build-to-rent. Social housing hasn’t worked here. You’ve got the instability through government policy,” he said.
“I think we’re starting to get the signals there [from the government], but given the returns haven’t been there historically, we actually need probably just a bit more time.”
Other creative approaches to boost residential housing supply, such as office conversations, are getting more attention, but BlackRock’s Retford said it is easier said than done. For one, there are differences in building specs requirements.
“You also need the office value to be low enough for the entry point to be able to create the product as well,” Retford said.
“In the US, you’ve seen that happen because pricing in office has materially changed – you just haven’t seen that here in APAC. You might see some obsolescent B-grade buildings, but again, those buildings wouldn’t be suitable for conversion to residential.
“If we’re looking for an increase in supply, we’ve got to look to our planning system as well to assist that more broadly.”
