- Growth expected for retail property sector with retail rents increasing and retail sales likely to grow with improved labour market
- Charter Hall launches new retail property fund with 8.0 cpu initial yield
Demand from investors for unlisted property is expected to increase in 2011 as the property sector is likely to provide higher than historical average returns, according to Charter Hall Direct Property. The
group has recently launched a retail property fund aimed at self managed super funds (SMSFs) and high net worth individuals to take advantage of any upswing in the retail property cycle, with retail rents
expected to increase as retail sales strengthen in 2011 and employment and the economy continue to grow.
Superannuation funds and in particular SMSFs are expected to lead the surge in demand for real estate in 2011 across the major sectors of office, industrial and retail assets.
“We expect SMSF appetite to grow as their long term outlook and appetite for income certainty and capital preservation is ideally suited to unlisted property, particularly retail property which is underpinned by major brand tenants,” said Richard Stacker, CEO of Charter Hall Direct Property.
For example, SMSFs account for 75% of the inflows to Charter Hall Direct Property’s funds. “With relatively low growth forecast in equity markets over the next few years, many investors are investing for income. Direct property, with its income growth built into lease structures, should be a good vehicle for investors to achieve this,” said Mr Stacker.
Australian super funds, which typically allocate around 10% to real estate, are also anticipated to have a growing appetite for property due to the strong economy and good property market fundamentals.
Demand for property exposure is expected to increase, in line with inflows into superannuation expected to grow from funds under management (FUM) of $1.3 trillion in 2010 to FUM of $2.5-3.0 trillion by 2020. The positive outlook for property fundamentals and demand for investment grade property should apply upward pressure on capital values, contributing to strong total returns for investors.
Challenges in the unlisted property sector, including some funds still with distributions on hold and high gearing levels, are dispersing as managers sell assets, merge with other funds or managers, and start
to provide some liquidity and exit strategies for investors.
“Property is still an important component in portfolio construction; however we still have a way to go in educating advisers about the role of unlisted property in an investors portfolio and how newly developed
funds have addressed these challenges,” Mr Stacker said.
Retail property to shine despite online shopping challenges
Despite recent suggestion that customers are moving online to do their shopping Charter Hall Direct Property does not see any major impact to retail property, particularly grocery anchored sub regional
and neighbourhood shopping centres.
“Retail property is still a strong area for investment due to a positive outlook for rental growth, particularly if you have exposure to brand names such as the Australian supermarket chains. Values are recovering and growth is expected, signalling a positive property cycle ahead,” said Mr Stacker.
Charter Hall has recently launched an unlisted retail property fund, the Charter Hall Direct Retail Fund (DRF) targeting high net worth and SMSF investors. The new fund has established an initial portfolio of
six properties with a total value of $177 million, a diverse portfolio with locations in New South Wales, Victoria and Queensland, with tenants including Woolworths Supermarkets, Coles Supermarkets, Big
W, Bunnings, JB Hi-Fi, The Good Guys and Spotlight. Charter Hall will look to acquire further suitable investments. DRF has been awarded Lonsec’s second highest rating, ‘recommended upper end’. The
launch of DRF follows the strong investor interest in Charter Hall’s Direct Industrial Fund (DIF), which has raised $43 million of equity since its launch in July 2010.