Why unlisted property funds will take the spotlight in 2020 and beyond

Shares often take centre stage when it comes to building a wealth portfolio, but there’s another asset class that’s been waiting in the wings, developing a strong foundation for investment portfolios.

As interest rates have fallen, the commercial property market has delivered strong capital growth as yields have compressed.

Australasian Property Investments Limited (APIL) managing director Peter Hughes said he expected the trend to continue.

Unlisted property has been performing remarkably strongly over the five past years with an annualised total return of 21.6 percent, higher than the 8.8 per cent annualised return delivered by Australia’s equities over that same period, Mr Hughes said.

“The lack of risk free investment opportunities in the current market has seen an influx of capital into the share market and commercial property market chasing better returns,” he said.

“While shares might be the easier buy-in option when it comes to lower starting capital and can make faster gains, sometimes it’s all about playing the long game.

“We’ve also seen significant volatility in the share market in recent times with US-China trade tensions and now coronavirus causing substantial stock trade-offs.”

Since its inception in 2001, APIL has established 28 commercial property syndicates with a past and present management portfolio delivering in excess of $1 billion in value.

Western Australia-based, APIL has expanded its property holdings across Australia.

“One of the main benefits of unlisted property funds is the ability to offer investors asset and geographic diversity across the office, retail and industrial market,” Mr Hughes said.

“For APIL, our success is not grounded in quick wins; it has been through diversification and strategic asset management, key to long-term gains, and it’s largely why we’ve been able to deliver an average of 232 per cent on investors initial equity (including return of investors initial equity) for our completed syndicates.”

Playing the long game

Mr Hughes said APIL’s unlisted funds had been able to ride the highs and lows of economic cycles as a result of long-term strategic planning.

“We’ve always handpicked well-located properties with high-tenant appeal and the potential for capital growth, matching this with sound asset management programs such as maintenance of building services and introducing sustainability initiatives,” Mr Hughes said.

APIL’s current portfolio consists of a mix of retail, office and industrial properties, including 50 Kings Park Road, Floreat Forum Shopping Centre and a warehouse in Regency Park South Australia.

“Historically APIL has targeted retail and office buildings, but we’ve since added more industrial to our portfolio with leasing and sales picking up across the country,” he said.

Industrial to take the spotlight 

Australia’s industrial property sector had strong FY19 capital growth, and Mr Hughes said investors were taking notice.

“There’s been a renewed demand for workshops and workspaces in some areas following a resurgence in resources projects, in particular industrial in Brisbane, Adelaide and Perth,” Mr Hughes said.

“These economies are recovering from past downturns and have strong mining activities within the state helping to boost jobs and state revenues.

“The industrial market presents a lot of potential, particularly due to many properties featuring fixed long-term rents, providing some underlying investment security.”

Late last year APIL launched its first industrial-dedicated fund, ‘APIL Industrial Fund No1’.

The fund has already secured two large industrial holdings, both leased to prominent national tenants on long lease terms with a weighted average lease expiry (WALE) by income of just over 16 years.

“We’re targeting $100 million worth of industrial assets and we are close to finalising a third property located in Crestmead Queensland,” Mr Hughes said.

“Our first investment period for the fund was oversubscribed, showing strong belief in not just the industrial market but in APIL.”

2020 and beyond

Mr Hughes anticipates the industrial property sector to continue as a popular choice in 2020, with positive signs starting to emerge across Australia.

“Perth has seen a resurgence in mining and experienced an increase in tourism, which has undoubtedly had a ripple effect on the wider local economy, property has been improving for the first time in many years,” Mr Hughes said.

“Brisbane has had strong GDP growth and Adelaide is now home to a $90 billion ship-building program.

“With improved economic conditions like these, unlisted property funds will become even more attractive in time.”

For more information visit www.apilgroup.com