AustralianSuper is one of the world’s largest investors in unlisted assets, investing more than $30 billion in assets like direct property, infrastructure and credit. We use our scale and capabilities to access a broad range of quality assets that have delivered solid long-term returns for members.

Here, AustralianSuper’s acting head of Property, John Longo talks about the Fund’s direct property strategy, the role it plays in a diversified portfolio and the outlook.

What type of property assets do you invest in and why?

We currently manage more than $10.5 billion in property assets on behalf of members. Our focus is on investing in large, quality assets like shopping centres and office buildings in Australia and international markets that can provide reliable, steady income streams.

We believe a portfolio which has exposure to high quality, large scale international assets in global gateway cities, coupled with exposure to core Australian commercial property, improves diversification and provides the potential for better long-term returns. Since 2013, we’ve been expanding our in-house capability and investing more directly. During this time, AustralianSuper members have become part-owners of the Ala Moana Shopping Center in Hawaii, King’s Cross in London, Centre: MK also in the UK, and a portfolio of office buildings in Boston and Washington DC.

There’s been a lot of news coverage about a potential housing market downturn in Australia, with prices already falling. What does this mean for AustralianSuper’s property investments?

We don’t expect the falls in house values to impact the pricing of commercial property sectors. Pricing and valuations of commercial property are determined by investor expectations of future cash flows, and return requirements which are not related to residential property.

What’s the outlook for AustralianSuper’s property portfolio?

AustralianSuper invests in multiple property sectors, either by acquiring properties directly or investing via unlisted funds. The main sectors we invest in are office, retail and industrial with the key geographies being UK, USA and Australia.

The outlook for the office and industrial market is positive, driven mainly by strong tenant demand, controlled supply and relatively high occupancy levels in most markets. Industrial property has experienced strong demand for space due to increasing logistic requirements as a result of increasing consumer consumption and e-commerce sales.

Retail property is being impacted by increasing online retail spending which is affecting retailer profit margins and the demand for retail space. We believe that the largest regional shopping centres are best placed to withstand the effects of online sales.

Property returns move in cycles. Currently, we’re in the mature phase of the growth cycle as values have generally been increasing since the global financial crisis and property rental yields and return expectations are relatively low compared to historical levels. Generally, we think property valuations and returns will be more moderate in future years due to the maturing property cycle and rising global interest rates. However, with continued economic growth and supportive interest rates, the majority of markets that we monitor are in a relatively strong supply / demand position and cash flows from well leased properties are relatively secure. As long-term investors, we look at returns across the entire economic cycle as these are what are going to matter the most for members.

AustralianSuper members can gain exposure to direct property through our PreMixed options or the DIY Property option. We recently announced some changes to the Property option to better manage the liquidity risk for members. Find out more.

Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.