Macquarie Sees Record Global Fund Flows Into Australian PropertyNichola Saminather and Narayanan Somasundaram
Macquarie Group Ltd., Australia’s biggest investment bank, is seeing record global investor purchases of Australian commercial property, which is offering relatively high yields and secure cash flows.
The bank arranged a total of $3.8 billion of foreign pension and sovereign wealth fund investment in Australian property in 2012 and 2013, the most since the bank started private capital operations in property a decade ago, Chris Green, global head of real estate at Macquarie, said in an interview in Sydney on Sept. 17.
“Large pension and sovereign wealth funds have very large, growing amounts of money and they’re looking to allocate a significant portion to real estate,” Green said. The bank assisted a European fund he declined to name with an industrial privatization in Australia, residential joint ventures in India and the U.K., and investments in U.S. multifamily properties and Chinese carparks.
Surging demand from investors for higher returns amid low bond yields globally is driving up commercial property values around the world. CBRE Group Inc.’s global industrial property index climbed 6.5 percent in the three months to June 30 from a year earlier, while the group’s retail property index rose 6 percent and offices 3.4 percent, “reflecting the significant level of capital migrating to commercial real estate,” the broker said.
Australian commercial property offered total returns of 9.1 percent in the year to June 30, about 80 percent of that from income and the rest from price growth, according to the Property Council/IPD Australia All Property Index.
That compares with total returns of 5.5 percent on U.K. properties in the 12 months to August, 7.2 percent in Canada in the year to June and 4.5 percent for Japanese properties in the year ended May 31, according to Investment Property Databank Ltd. indexes.
Australia’s 10-year government bonds are offering yields of 3.95 percent. U.S. Treasuries yielded 2.7 percent yesterday.
Globally, Macquarie Capital completed $3.4 billion of property deals in 2012 and has already exceeded that with $3.7 billion this year, with the number of transactions staying at eight both years, Green said.
Investors increasingly prefer to do larger deals with fewer managers, he said. They’re also moving to riskier investments, including lower-quality properties, those that need some refurbishment or even development, as prices at the top end climb, he said.
Among Macquarie’s biggest transactions since the start of 2012 have been the A$1.9 billion ($1.8 billion) privatization of Sydney-based Charter Hall Office REIT by the Canadian Public Sector Pension Investment Board and GIC Pte affiliate Reco Ambrosia Pte that completed in April 2012; a $500 million raising from Abu Dhabi Investment Corp. to invest in warehouses in Japan in partnership with Sydney-based Goodman Group in September 2012; and the A$1.75 billion split and restructure of an Australian shopping mall joint venture between Westfield Group and AMP Capital Ltd. last October.
Interest is also growing in U.S. property investments, where Macquarie has added “a couple of people,” Green said, without specifying further.
U.S. commercial property offered an annualized total return of 10.8 percent in the year to June, compared with a five-year average of 2.7, according to IPD.
CBRE’s Americas retail value index performed better than any other region, jumping 8 percent in the second quarter from a year earlier, reaching its pre-global financial crisis peak, the broker said. The Americas office index was also the best performer globally, according to CBRE.