Charter Hall head of direct property Steven Bennett recently spoke to SMSF Adviser about his expectations for the commercial property market in both the short and longer term and what advisers should be looking for when selecting investments.
The trends driving the commercial property market
Despite some of the headlines around the world, Mr Bennett said Australia is in a fantastic position to continue to grow.
“Australia is unique in the developed world in that we’ve got strong forecasts for employment growth. We have population growth of 1.5 per cent per annum and that’s coupled with forecasts of strong economic growth,” said Mr Bennett.
An increase in population means greater need for industrial properties, shops, and office buildings.
“We’re one of only six countries with the top credit rating with S&P and Moody’s and we’re the fourth-largest net student inbound destination in the world,” he added.
“In addition, commodity exports have gone up fivefold in the last 20 years to $380 billion last year. Australia also has the biggest potential for solar and wind generation of anywhere in the world.”
These are the key fundamentals making Australia an attractive investment destination for some of the biggest offshore investors, he said.
Managing volatility in the short term
While fundamentals are looking strong in the longer term, Mr Bennett said there will be some volatility in the commercial property market in the short term.
With interest rates moving the fastest they have in 30 years, it’s essential that property managers have well resourced teams working on the ground in the current environment, he stressed.
“At Charter Hall we have teams in all the key locations where we have real estate.”
“Property is a relationship game and this is critical to getting the best leasing deals with tenants, accessing the best buying opportunities and sale and leasebacks.”
Due diligence for SMSFs
For SMSFs looking to add commercial property to their investment mix, Mr Bennett said there is a range of important factors they need to consider when selecting investments.
“Advisers and their clients should focus on a manager that has delivered over long periods of time, that’s well resourced and has access to the best deal pipeline in the market.”
It is also important to ensure the fund has appropriate and conservative gearing.
“We typically target gearing between 25 and 38 per cent, we don’t like to go any higher than that.”
As the largest owner of real estate in the country, Mr Bennett said Charter Hall is well placed to access opportunities and drive investor returns throughout the investment cycle.
“A key point of difference at Charter Hall is that whether it’s an SMSF investing $50,000 or an offshore pension fund investing $500 million, the quality of the real estate is the same,” he said.
“We’ve lowered the entry point for SMSFs and high net worth clients wanting to access quality institutional property.”
Understanding the different structures
Mr Bennett also highlighted the importance of advisers and their clients understanding the different structures available for investing in commercial real estate.
“One of the advantages of Australian real estate investment trusts (A-REITS), for example, is that they’re liquid so you can re-adjust the portfolio allocations in the SMSF,” explained Mr Bennett.
“The adviser can then work with their client to move those allocations around.”
Unlisted property funds on the other hand are illiquid, so the investment horizon should be at least five years.
They are less volatile however, and don’t experience the same day to day movements and short-term gyrations that A-REITS that are traded on the ASX experience.
Exploring different investment options
There is a wide range of sectors and themes available to invest in the commercial property space.
“The adviser and their client are best placed to select from those different sectors or themes based on their financial objectives,” he said.
“Charter Hall has a number of different funds including office funds where the major tenants are Australian and state governments, a $3.5 billion logistics fund and thematic funds focused on industrial ecommerce, onshoring and supply chain resilience.”
It also offers diversified funds, including the Direct Long WALE Fund, which has gained a lot of traction from SMSF investors.
“Relying on the property expertise of Charter Hall to decide the weightings to different sectors and how to best generate returns is an attractive option for advisers and SMSF investors,” said Mr Bennet.
For more information and to chat with Charter Hall’s property experts, you can visit the Charter Hall stand at the upcoming SMSF Association National Conference.
