Unlisted property funds in Australia generated an annual return of 23.1% through the end of March, newly released data showed.
This put unlisted real estate ahead of domestic equities (15.7%), listed A-REITs (15.4%) and global equities (10.6%) in terms of returns over the same period.
In the first quarter of the year, unlisted real estate posted the highest returns of any real estate asset class and was surpassed only by domestic equities, reported Zenith Investment Partners, Australian Unity, MSCI , the Property Funds Association and the Property Council of Australia.
Companies said the rise in rents and capital values was supported by record transaction activity in the quarter. Meanwhile, A-REITS fell slightly and were trading below their book value.
“The last quarter has seen an increase in the number of property transactions, particularly in pubs, hotels, childcare centers and service stations outside of traditional sectors such as offices, retail and industry,” said Dan Cave, principal investment analyst at Zenith Investment Partners.
“Deals have been a key factor in recording low capitalization rates and high asset values, particularly in the industrials and logistics sectors.”
In terms of direct ownership, a total return of 11.4% was reported for the 12 months ending March. The companies said revenue yields for the year remained attractive at 4.7%.
The return on capital in direct real estate over the 12 months was 6.5%, with growth in all sectors, including 23% for the industrial and logistics sector.
Industry and logistics also had the lowest capitalization rates at 4.1%, compared to 5.1% for retail and 4.8% for offices. Office assets produced a total annual return of 9.2%, while retail properties generated a return of 6.9%.
“It was pleasing to see commercial real estate assets showing resilience in the first quarter as markets navigated a period of rising rates, rising inflation and global supply chain disruption. true for industrial and logistics assets,” said Damian Diamantopoulos, fund manager for Australian Unity’s Property Income Fund and head of research property/head of firm REITs.
“However, after a long period of sustained capital growth propelled primarily by cap rate compression, these conditions, together with the recent stock and bond market turmoil, suggest that commercial real estate returns will be increasingly guided by the underlying real estate fundamentals.”
Jon Bragg is a reporter for Investor Daily from Momentum Media, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.