Alice Breheny
Australian superannuation funds continue to prioritise exposure to global property, with retail opportunities in particular catching the attention of local institutional investors, according to global real estate heavyweight TIAA Henderson Real Estate (TH Real Estate).
TH Real Estate is one of the world’s largest real estate investment managers and the world’s leading retail investor with AUD$33.7bn* in retail assets under management. This week the firm launched new research – Picking Tomorrow’s World Cities – which advocates a city-level approach to real estate investment.
By adopting a proprietary filter process, TH Real Estate has scored over 200 European cities against individual economic and environmental fundamentals, as well as a global risk model, to identify cities that are ‘future proof’ for investors.
The report is the next instalment of TH Real Estate’s global megatrends research, and follows the release in November last year of The ‘Famous Five’: The five demographic megatrends that real estate cannot ignore.
The latest research examines the economic fundamentals of a range of ‘future proof’ cities, revealing a wide range of findings including:
- Istanbul will be the fastest growing city in terms of GDP growth change between 2010-2030
- London’s retail market will be the largest retail market in Europe by 2030, with retail sales worth US$600bn
- Switzerland’s Basel is the most productive city in terms of GDP per capita, followed by Geneva, Oslo, Zurich and Stockholm
According to TH Real Estate, the impact of megatrends – long-term structural trends – is likely to be much more notable at a city level, than nationally. Therefore the most successful real estate strategy is likely to be city-based, underpinned by structural, long-term trends.
Alice Breheny, Global Co-Head of Research at TH Real Estate said: “Challenging market conditions and evolving investor requirements mean we are increasingly looking at longer-term drivers of real estate performance. A city-based real estate strategy, underpinned by long-term, structural trends – that strikes the right balance of risk and diversification, while taking advantage of short-term pricing opportunities – will be best positioned for above-average portfolio level returns, lower-than-average volatility and modest downside risk, for long-term investors.”
Nick Evans, TH Real Estate Executive Director and Head of Australia said: “Australian institutional investors are showing increasing appetite for international real estate, in particular retail property, due to its low volatility, long lease terms and diversity of tenant base. While a range of opportunities exist across international markets, on the ground expertise is essential to ensuring any investment delivers the appropriate returns.”
For core investment strategies TH Real Estate suggests cities that score well on key fundamentals today (Defensive Cities) and those that score well today and tomorrow (Defensive Growth Cities). These are the cities TH Real Estate expects to capture an even greater share of global output and demand in the future.
Additionally, there are some cities which do not score well in traditional real estate terms today, but whose growth rates cannot be ignored (Growth Cities). With the largest real estate markets typically closely-correlated, driven by financial and business services, these offer a significant diversification benefit and the potential to further enhance returns.
Investors favour retail for stable, long-term income
The European market presents solid opportunities for Australian institutional investors. However, TH Real Estate believes investments should not be made indiscriminately and that understanding of the individual markets, their differing trends and consumer behaviour is essential.
Nick Evans, TH Real Estate Executive Director and Head of Australia, said tailored investment approach can be a compelling solution for large institutional investors looking to make a move in global real estate, providing them with the flexibility, exposure and returns they need.
Click here to view the full report Picking Tomorrow’s World Cities.
