sydney office
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  • Strong economic growth is expected this year despite ongoing Omicron disruptions
  • Australian superfunds currently own $167B worth of property
  • Commercial property is seen as a hedge against inflation

Commercial real estate is set to boom over the next two years, with over $68 billion to be channelled into commercial real estate from local superannuation funds, according to CBRE’s 2022 Pacific Real Estate.

With GDP expected to grow by 3.5% to 4.5% this year, and unemployment to fall even further, the report expects companies to take advantage of top-line growth through hiring and upgrading office space.

Commercial real estate investment volumes are expected to be 10% higher this year in Australia and New Zealand. Last year, the sales tally reached $50 billion – a record. At least $40 billion was transacted across assets worth over $20 million.

While offshore will investment is expected to remain a key driver, rising superannuation fund allocations will play a significant role according to CBRE’s Head of Research, Pacific, Sameer Chopra.

“Foreign investment reached a record high in 2021, and Australia’s border re-opening should spur further interest,” he said.

“There is also scope for an incremental $68 billion of inflows by 2024 from Australian superannuation funds if asset allocation to property returns to historical levels of just over 8%.”

sameer chopra
Sameer Chopra of CBRE. Image – LinkedIn.

“The numbers could be even bigger if funds chase the inflation hedge offered by real estate.”

Total Retirement Savings Asset Value

total retirement savings asset value
Source: APRA, RBNZ, CBRE Research

Insights from the report show the value of the retirement systems in Australia and New Zealand have steadily risen since 2014, with only small declines recorded in 2018 and briefly during the beginning of the pandemic in 2020. Currently, the total value of assets is $2.26 trillion.

Australian Superannuation Property Investment

australian superannuation property investment
Source: APRA, RBNZ, CBRE Research

Australian superannuation finds currently own $167 billion worth of property assets, with majority towards unlisted property.

Commercial property a tool against inflation

The report in particular argued that commercial property, as an asset class, would be attractive given its hedge against inflation.

“This is due to the fact that over the long-run, market rents largely rise with inflation, with short-term variations from changes in market fundamentals,” the report said.

“As a result, this increases capital values in line with inflation over the long term as well. In addition, leases generally have inflation based escalations which grows the income during lease terms.”

Other key market drivers include residential prices, commercial rent growth and migration – especially given borders are open nationally (excluding Western Australia).

“Australia’s focus on returning citizens and skilled migrants will be one of the main drivers of the speed of recovery in the real estate sector,” Mr Chopra said.

“An inflow of 490,000 migrants by 2024 could set the scene for an incremental 900,000sqm of office space, 200,000 dwellings, 2,200,000sqm of industrial space, and $6.7 billion of retail spend.”

“Casting an eye to residential, Australia has an under-supply issue and prices should increase 5%-10%, with Brisbane best positioned to achieve double digit price growth.

“Positive rent and price trends for units could also see a doubling of Australia’s announced build-to-rent pipeline to around 20,000 apartments.”

The CBRE report has forecasted low single-digit rent growth with a peak in incentives during the middle of this year.

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