Institutional investors grow RE alternative share

The good understanding of the cash flow gives Australian institutional investors an advantage in increasing their share across the alternative real estate sector, according to AMP Capital’s head of global listed real estate James Maydew.

During the AMP Capital’s webinar on Wednesday, he said the alternatives was one of the two markets across the real estate, next to the industrial sector, that continued to grow and was expected to account for 55% of the US REIT index composition.

Although Maydew said his team believed that the US real estate market should be looked at an indication of how the trends could play out and that Australia might be at the start of a similar trend, the current institutional ownership of Australian unlisted property remained still very different from the US trends.

“Office and retail continue to dominate the unlisted real estate allocation in Australia. Although the industrial [sector] has grown significantly it is still in the minority but the smallest component is the alternatives real estate sector,” Maydew said.

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Source: AMP Capital

Maydew said that to understand the alternative sector investors needed to understand the cash flows and the security of those cash flows. Additionally, the pressure being put on the retail sector led investors to start looking for diversification.

 “[Investors] are doing that work to understand those cash flows and how to price them and we look to the US market as an indication of the where the capital allocations have moved.

“We believe in that institutional investors in Australia will continue to take a greater share in the alternative real estate going forward because of their understanding and trusting in those cash flows,” he said.

Maydew explained that although a concept of having a separate allocation to real estate had been low years ago, it enabled institutional investors see greater diversification across their portfolios and through this it helped generate an institutional perception of what the institutional real estate was and what was not.

“This was driven by office and retail in the main and the industrial with the small allocation because industrial sector historically has not been a great grower.

At the same time, the alternatives sector remained dormant but the security of cash flows across this sector has now become far greater compared to other, more traditional, sectors.

“We think it has a long way to play out as institutional investors continue to recalibrate their portfolios to some of these exceptional real estate trends,” Maydew concluded.