The $1.3 trillion Australian superannuation funds industry is expected to allocate $75 billion to overseas investments by 2020, of which 10 percent ($7.5 billion) could be dedicated to real estate investments, according to a recent report by Jones Lang LaSalle (JLL).
Australia’s superannuation system, by some measures considered the fourth largest asset pool in the world, is set to pass $2.8 trillion in value by 2020. Of that, JLL estimates that $75 billion will be made available for overseas investments between now and then.
It is also expected that the industry will maintain its current 10 percent allocation to real estate, and that would equate to $7.5 billion of new Australian capital becoming available for overseas real estate.
“Between now and 2020 we estimate the demand for direct real estate from Super Funds will outstrip domestic supply,” John Talbot, JLL’s head of capital markets in Australia, said in the statement. “With the domestic market unable to offer sufficient opportunities to provide the real estate exposure sought by the funds, international real estate markets are set to benefit.”
Although Talbot predicted that the US and Europe would be the immediate preferred destinations for Australian investors, emerging economies should also benefit as their economies continue to perform. Pointing out that by 2031, Asia Pacific is expected to account for up to 50 percent of the global institutional commercial property market by value, Talbot added that more and more Australian capital is likely to target the region over the medium- to long-term.
Most Australian super funds moved out of the international real estate market after the onset of the global financial crisis to focus on domestic real estate. However, in the past two years international investors have also begun to take notice of the Australian market, and competition for Australia’s prime assets has increased.
“As a result, off-shore investment will return to the Super Fund’s agenda in the next few years,” according to Alistair Meadows, head of the JLL international capital group in Asia Pacific. “As such, we expect the next wave of offshore Australian capital to emerge in the form of joint ventures and dedicated investment mandates with specialist local managers; all of which adds to the new liquidity in the global real estate markets.”