Disruption at play in the property sector

Technology and offshore investment are two disruptive forces at play in the property sector, says chief executive officer of Centuria Unlisted Property Funds, Jason Huljich.

As Prime Minister Malcolm Turnbull urges Australians to make disruption their friend, Huljich says technological innovations have the potential to contract the commercial office market – but not yet.

“We’ve seen activity-based working evolve over the last five years among our tenants – and a company with significant office space can potentially shrink its footprint by as much as 30 per cent,” he says.

However, the trend to activity-based working is clearly not affecting vacancy rates, and Huljich, who oversees a portfolio of 27 properties with a combined value of $1.0 billion, says tenants are “retaining their space, but using excess for new purposes – creating customer and innovation hubs, co-working spaces and focusing on extra amenities for staff.

“It may mean we don’t need less office space in the future – we just use it in a different way.”

How companies embrace teleworking may be another story.

“What happens when more workers operate from home? Will companies need less space than they need to today? It’s something we need to grapple with,” he says.

The other disruptive force is found in offshore investors, who are “making it significantly harder for onshore investors to access assets.”

CBRE has found that Chinese investors ploughed $5.65 billion into global commercial real estate in the first quarter of 2015, up 15 per cent on 2014. Australia was the beneficiary of a quarter of that capital.

Huljich points to the recent sale of the $2.45 billion Investa portfolio to China Investment Corporation (CIC), one of the world’s largest sovereign wealth funds. 

“Less than 10 parties in Australia could take on that investment because of its size – but or so parties expressed interest and it ended up being bought by CIC at a very strong yield.”

Huljich, who has been involved in investment property syndication in Australia since 1996, says there’s no doubt Australia currently has a “two-tiered market”.

“Sydney is our pick of all markets, mainly because the state government is spending money on infrastructure – particularly rail and road – which really does strengthen the property sector,” he says.

“The Melbourne market is also strong. While currently there’s not as much spending on infrastructure, there’s still robust demand for commercial investment property. It’s a tightly held market, so it’s difficult to buy.”

Most other markets – notably Perth and Brisbane – are struggling.

“Brisbane’s office market is around 30 per cent energy and mining related, while Perth’s is around per cent, so there’s no surprise they are hurting,” he says.

“We’ve stayed out of the Perth market because it’s so volatile – you can make a lot of money, but you can lose a lot too.”

Instead, Huljich likes part of the Canberra and Adelaide markets, where he says there are the “odd patches of opportunity” as Centuria likes to buy counter-cyclically.

The vacancy rate across Centuria’s entire unlisted portfolio currently sits at just 0.7 per cent, which is “the lowest it’s ever been,” Huljich says.

“You can’t forget that property is cyclical. It has its ups and downs, but it’s always interesting.”