Capital wave: How big money is investing in property in Australia

Global players are shifting away from traditional asset classes and want new style properties that will give them exposure to rising student and housing markets. Picture: Vince Caligiuri/Getty Images

Investment in Australian real estate by local and international players is shifting in response to the tougher economic conditions being faced around the world.

While big investors are still recognising the attractiveness of asset class, the way they are pledging their cash has shifted, leading property figures said at the annual congress hosted by the Property Council of Australia in Adelaide this week.

Office landlord Dexus’ executive general manager of funds management, Deborah Coakley, said Australian core real estate investors were grappling with issues around valuations, whereas offshore investors were focusing on a five to 10-year view of large projects.

But liquidity was increasingly becoming a major factor in how institutions were investing. On the equity side, some high-profile offshore funds were restricting redemptions but had flagged debt as a growth area.

“We have traditionally seen super funds, sovereign wealth funds, family offices, high-net-worth individuals as equity investors in real estate,” Ms Coakley said.

“They’re now very much considering that funding side, the debt or credit side of real estate, which is fantastic, but it changes the dynamic of the market. So, we’re all just readjusting around to those conversations that look at what is actually available to kick off a project today.”

Global players are shifting away from traditional asset classes and want new style properties that will give them exposure to rising student and housing markets. Picture: Vince Caligiuri/Getty Images

JBWere chief investment officer Sally Auld said Australia remained an attractive economy for investors to park funds.

“It might be difficult at the moment for property investors because, across assets, there are some significant headwinds, but the message is, fundamentally here in Australia, (that) there are some pretty impressive structural tailwinds for the asset class,” she said.

Building will continue to be fundamentally tougher to deliver over the next six months, the managing director of QIC Real Estate Michael O’Brien warned. However, there were still opportunities in the market.

“There’s so much about the Australian economy that’s got so many positives attached to it,” Mr O’Brien said.

“So, like always, I think if you can service capital in a way that’s providing strong returns, you will then attract capital. Then the wonderful opportunity as a property owner or fund manager is to be able to invest into some of these terrific opportunities that emerge across all the properties.”

Major global economies are diverging.

While the US has continued to record surprising growth through 2023, cyclical and structural headwinds in China has caused the local economy to slip. European growth has also been trending lower in recent quarters, with fears emerging that Germany is on the cusp of a recession.

Ms Auld said that after many central banks implemented aggressive tightening cycles, the year was on track to end on a positive note regarding inflation.

“There’s a lot of different things going on at a central bank level, on a geographic level in the global economy, which means putting a picture together is reasonably difficult.”

“We’ve seen inflation, pretty much in every economy peak around the end of last year and start to come down.

“There is a reasonable caveat, an important one, because particularly in some countries, our own included, but also … the UK and Europe, even though inflation has peaked and has calmed down, it’s still well above central bank targets. Central banks will not be able to relax until they have greater confidence that inflation is really, truly on a trajectory towards a 2 per cent target.”

Dexus’ Deborah Coakley said the office sector was 12 months into a two-year grind to the bottom of the market. Picture: Lisa Maree Williams/Getty Images

In the office space, Ms Coakley said the office sector was 12 months into a two-year grind to the bottom of the market. While there was opportunity for business to attract investment, it was now about proving its feasibility.“

It is more to do with interest rates are at and driving some stability into the feasibilities and underwrites that people are going to feel really confident with in order to make that investment, in order to put a repositioning proposal forward,” she said.

However, the CEO of purpose built student accommodation provider Scape, Anouk Darling, played down any suggestion that repurposing many office towers into alternative asset classes such as residential, saying it was not commercially viable in the longer term.

“There are just so many dynamics around where the core is, the type of amenity we need to put in,” Ms Darling said.

“I would love to think we could repurpose because it’s (about) sustainability, and it’s so wasteful to have these empty assets, but it is very, very difficult (to repurpose) and it’s certainly not a solution.

“Unfortunately, I don’t think there’s a silver bullet.”

Student Accommodation Council’s Anouk Darling. Picture: John Feder/The Australian

Mirvac’s chief executive, development, residential, commercial and mixed use, Stuart Penklis, said the fundamentals in the home building sector were strong, adding government housing targets were good things to strive for.

However, the “devil will be in the detail”.

“One of the great things that has come out, and the devil will be in the detail, is the funding to incentivise those states to hit the targets – most importantly that investment in planning systems but also that funding flowing down to local government to really make things easier for communities to accept greater densities,” he said.

Mirvac’s Stuart Penklis. Picture: Supplied

Mr Penklis said the discussion needed to move away from urban sprawl and instead focus more on quality and the delivery of a diverse range of housing.

“We don’t just need social, we don’t just leave affordable housing, and that in all our cities and that’s from inner, middle and outer ring,” he said.

“We need to, as an industry, to leave a great product, great community so that people are more accepting of the great things that we do that make it easier for government to embrace this new way of tackling supply challenges.”

Scape’s Ms Darling said one of the biggest issues for governments looking forward will be to “join the dots” between taxation, regulations, building and costs.

“I’d actually like government to join the dots, not just on their thinking but on the secondary effects of their thinking and the impact into the economy and then ultimately to the customer, who has to wear it.”

The Australian was invited to the event as a guest of the Property Council of Australia.