Skip Ribbon Commands
Skip to main content

News release

Sydney

Real estate moving from an ‘alternative’ investment asset to mainstream

If the world’s top 30 sovereign wealth funds by assets under management each increased their allocation to real estate by 1.2%, the additional capital would enable them to buy the 496 office buildings that make-up the Sydney CBD


AUSTRALIA, 17 OCTOBER 2012 – Investment in real estate assets has traditionally been classed as an ‘alternative’ asset class, but the trend is showing that investors are now moving real estate out of the alternatives category into the mainstream.

A new Jones Lang LaSalle Research Report, entitled ‘Real assets and the Asia Pacific’ finds the defensive characteristics of real estate are becoming more widely appreciated.

“Increasingly, institutional investors are moving real estate out of the alternatives category and making it a mainstream asset class in its own right,” said Director, International Investments, Ben Hunter.

“There are estimates in the market that allocations to real assets could rise from roughly 5% - 10% today to as much as 25% over the next decade.
 
“To put some context around the volume of additional capital, it the world’s top 30 sovereign wealth funds by assets under management each increased their allocation to real estate by 1.2%, the additional capital would enable them to buy the 496 office buildings that make-up the Sydney CBD, estimated at AUD 48.2 billion.
 
“There is a trend towards increased risk aversion by large investors – sovereign funds and global pension funds, in particular.    Throughout the world, there is a move towards portfolios designed to achieve more stable risk-adjusted returns.
 
“We have already seen a number of sovereign wealth funds and pension funds are re-rating property as an asset class, resulting in higher allocations to direct property within their portfolio.
 
“The Canadian Pension Plan Investment Board (CPPIB) – who have been active in the Australian retail and industrial sectors – has increased its allocation to real estate from 4.3% in March  2007 to 10.6% in March 2012.  Another significant offshore investor into Australia – The National Pension Service of Korea (NPS) expects alternative investments to account for more than 10% of its total portfolio by 2016.  In 2007, NPS’ allocation to alternative investments was 2.5%.
 
“CIC has also increased its allocation to alternative investments (including real estate) and from March-2010, the Government Pension Fund (Norway) allowed for a maximum 5% allocation to real estate (previously zero).
 
“Over the past five years, we have seen a number of new entrants into the Australian market. There are currently a number of offshore groups – without an exposure to Australia – preparing strategy papers for investment committees to obtain an allocation for investment into the Australian market.
 
“The combination of higher allocations to real assets and the increased weighting towards the Asia Pacific region will support capital flows into Australian commercial real estate over the medium-term.
 
“Australia continues to receive a disproportionate share of global capital and will benefit from this increased weighting of capital to Asia Pacific.
 
“Australia plays an important role in Asia Pacific for investors looking for global diversification in their real estate portfolios.  Australia accounted for 22.5% of the cross-border capital flows in the Asia Pacific region over the three years to June 2012.
 
“The Asia Pacific real estate markets are projected to record the strongest growth than other regions over the next 20 years.
 
“Strong population growth and higher urbanisation rates will drive the real estate markets in Asia Pacific.  Pramerica Real Estate Investors projects that the global real estate investment universe will rise from USD 26.56 trillion in 2011 to approximately USD 91.0 trillion by 2031.
 
“Of this, the Asia Pacific region is projected to increase to USD 45 trillion in 2031 and account for 60% of the global growth between 2011 and 2031.
 
“Australia is, and will continue to be, a beneficiary of this trend,” said Mr Hunter.