Australian real estate investment trusts miss global trends

“The global investors’ view of Australia has deteriorated over time. What that largely reflects is global investors’ preferred exposure to various asset classes.

“We don’t have any exposure to residential REITs, known as multi-family or residential-for-rent. As well, we have no data centers and towers, other than NextDC. We also have minimal [listed] healthcare.”

Lagging behind the US

Mr McCasker said the market was looking to invest in sectors exposed to “structural tailwind themes”.

“That has accelerated post-COVID and the Australian market is underweight in those sectors.

“Healthcare, multi-family, data centres: they are huge sectors in the US. In Australia, those sectors represent roughly 10 per cent of the market. In the US, by comparison, it’s closer to 60 per cent of the market.

The Australian market has plenty of exposure to industrial real estate such as logistics facilities and warehouses, with many of its REITs – including its two largest fund managers, Goodman and Charter Hall – running major portfolios.

But healthcare real estate is held sparingly among the REITs. Although plenty is held in private hands, players such as Dexus and Centuria are among the few to bring the sector on to their management platforms.

Also in its infancy here, build-to-rent accommodation is growing strongly despite a prohibitive federal tax regime. However, most BTR assets are being developed privately by players such as Greystar, Hines and Oxford Properties. Mirvac is one of the few listed stocks developing BTR assets.

Retail on the rise

The UBS research allows one consolation, however, for local property stocks, as global investors begin switching money back into retail. The Australian REIT sector has traditionally held a larger component of shopping centers compared with other global markets.

That may now be to its advantage; Good news for big owners such as Westfield operator Scent and Vicinity Centres.

“While people are still cautious about retail, it’s worth noting that the market has increased its exposure to retail over time. Retail has seen the biggest increases over the past year,” Mr McCasker said. “That reflects the fact that values ​​and rents have re-based.”

“Everybody loves logistics, it’s the asset class people think does the best. However, it’s also seen the biggest reduction in exposure because the market has gone to find value elsewhere.

“Listed investors have seen value elsewhere, especially in a period of rising rates. That has been in retail, healthcare and residential. While logistics is still the preferred asset class, it is just not as much the consensus overweight as it previously was.”