Australian unlisted property shielded from downturn
Australian unlisted property funds were shielded from the economic slowdown brought by COVID-19 due to their slower appraisal-based valuation cycle, according to Zenith Investment Partners.
Unlisted property funds delivered 14.5% during the June quarter, up from 13.5% the previous financial year, data from Zenith, Australian Unity, MSCI, the Property Funds Association, and the Property Council of Australia found.
This strong performance was in contracts to Australian real estate investment trusts (AREITs) that were down 26.3%, while overall Australian shares fell 8.7%. Direct property was up 1.4%, while fixed income was up 5.5% and cash at 1%.
Zenith’s head of real assets and listed strategies, Dugald Higgins, said Australian unlisted property’s advantage was their slower valuation cycle.
“Moving forward, as more assets are progressively re-valued, returns in the sector are expected to soften as revisions to assumptions about vacancy rates, effective rents and capitalisation rates flow through,” Higgins said.
Australian Unity, head of research – property, Damian Diamantopoulos, said there was a growing disconnect between public and private markets and that many AREITs were trading at discounts to 30 June, 2020, asset-backing, and owned properties with above average asset quality.
He said industrial property had remained solid as the pandemic accelerated the e-commerce trend and drove demand for warehousing space, and there were pockets of strong performance in the retail sector.
Dimantopoulos noted the low interest rate environment along with substantial fiscal and monetary stimulus continued to support the commercial property sector.
“While COVID-19 has certainly disrupted the sector, there is a growing disconnect between public and private property markets at present. When coupled with a low interest rate environment there is a good chance this will result in an uptick in mergers and acquisitions at some point,” he said.
Recommended for you
Outflows from an Australian private markets fund manager have caused FUM at Pacific Current to decline by $1 billion in the last quarter.
Former RIAA chief executive Simon O’Connor has joined the ethical advisory panel at U Ethical Investors.
Financial services leaders are “all cashed up with nowhere to grow” when it comes to M&A activity, according to Deloitte, with 90 per cent saying they have strong balance sheets ready for an acquisition.
As fund managers are urged to diversify their product ranges, they are finding a faster way to do this is via an acquisition of existing firms but experts say it is not without potential culture clashes.
