This article is from the Australian Property Journal archive
AUSTRALIAN superannuation funds are starting to show interest in the UK commercial property market, which are offering annual income of 6.5%.
International property funds manager Cordea Savills director of Cordea Savills’ UK Income and Growth Fund George Tindley said the market currently offers annual income of around 6.5% and boasts transparency than any other market, making it a prime target for sophisticated Australian investors.
In January this year, he launched the open-ended commercial property fund with a target size of one billion pounds (A$1.8 billion). The fund has already secured cornerstone investors including Aviva Investors, ING and a Scandinavian institution. It has also completed its first purchase, a retail warehouse in Bristol bought from Gallagher Developments for GBP31.3 million and yielding 6.25%.
Tindley said the UK is currently attracting record investment inflows.
Unlisted UK commercial property funds saw inflows rise from GBP450 million in Q3 2009 to GBP2.9 billion in Q4 2009, according to the Association of Real Estate Funds.
The AREF figures point to investors seeking to capitalise on a very attractive window of opportunity in the UK property cycle. The market correction in 2008-2009 saw prime commercial property prices drop by about 70% in AUD terms, creating opportunities to acquire assets at deep discounts.
“Income levels currently available on UK commercial property are now well above historic averages and enable investors to lock in bond-like returns. The UK’s very long lease lengths and upward-only rent reviews mean the risks attached to these income streams are particularly low,” he added.
“The view among the larger Australian institutional investors that you only ventured offshore when there were significant capital returns on offer is changing.
“They are now starting to look at overseas investments in a more balanced way, seeking diversification, secure income distribution, low risk, low gearing and capital growth over the longer term,” Tindley continued.
“Clearly uncertainty remains in the market due to a generally weak economy but pricing has already recovered significantly from mid 2009 lows as investors saw confidence return to the market and, surprisingly, selective upward pressure on rents rather than the expected further tenant market deterioration.
“The commercial property market already offers fair value in the UK but add in the price advantage of sterling against the Australian dollar and the risk adjusted returns look very attractive indeed,” he concluded.
Australian Property Journal
