A holy trinity for Aussie real estate: MA Financial

If there’s one clear lesson to take from the market chaos of the last few months, it’s the value of long-term thinking.

So says Chris Tynan, Head of Real Estate Australia for Blackstone, who joined the panel at the MA Alternatives Summit last week to discuss the opportunities in property right now.

“For the last 90 days we've had a pretty good experiment in why not to be short-termist and why to try and invest over the medium-to-long term,” says Tynan.

While the market dislocation from the ongoing trade war makes it an attractive time to deploy capital, says Tynan, Blackstone’s approach means looking further ahead.

“We're very thematic investors. We try to pick themes that are going to grow and compound over a long period of time - things like the digitisation of the world, or the shift from stores to online.”

The holy trinity

While Trump has upset the apple cart of global markets, he’s now got what he wanted, believes Andrew Pridham, MA’s group vice chairman.

He relays the view that Trump’s front-footed approach is partly due to his experience of being stymied by the results of midterm elections during his first presidential term.

To borrow Mark Zuckerberg’s phrase, he needs to move fast and break things if he wants to pass his agenda before he needs to get establishment Republicans back on side in time for the 2026 midterms.

But that’s not necessarily bad news for property investors, especially if the geopolitical situation settles down as many predict it will.

Closer to home, Pridham believes the environment is very positive, especially for Australian real estate, which has the “holy trinity” of falling interest rates, strong economic demand and population growth, and a shortage of supply.

“Overall, we’re very optimistic about the environment,” said Pridham.

Julian Biggins, MA’s Joint Chief Executive Officer, agrees. Construction costs, supply constraints, population and wage growth make it a “very good time in the cycle to be deploying into real estate”.

“We do live in the lucky country - we seem to be very lucky consistently.” 

Sector opportunities

“Office has had a tough run, frankly since pre-Covid,” says Tynan. Rising interest rates meant debt servicing was going up while cash flows declined as demand for commercial office space evaporated.

But it’s not all bad news, especially in the Sydney market, where the state government’s return-to-work mandate and lack of premium supply makes it an attractive proposition.

“The supply side for the east coast of Australia in the CBDs is very under control,” said Tynan.
“We predict actually that the Sydney office market will continue to perform fairly well off of a reset base.”

It’s a slightly different story in Melbourne where there’s been no mandated return-to-office mandate.

“So it’s not a one-size-fits-all answer, but I think the cataclysm that was predicted - everyone's going to work from home in their pyjamas forever - is overstated and we're going to see a continued trend back towards what we had pre-Covid.”

Elsewhere in commercial real estate, rising immigration levels also means more shoppers, which has meant retail property is performing at 2019 levels, according to Tynan.

Covid was also a boon for industrial property, with rents almost doubling during that time. It’s also a sector that has reached its natural supply cap, especially around metro areas.

“I’m a big bull on retail,” says Pridham. “It clearly took a hit with online shopping but that's now completely levelled out.”

“They're not building more retail space, and retail generally is a beneficiary of people spending even one day a week working from home.”

Pubs are another winner.

“Pubs are yielding 7.5-8.5% and growing their earnings by 5% a year,” said Biggins. “It’s a phenomenal asset that’s done that over a very long period of time. I’m not sure there’s too many real estate asset classes that have that consistency of growth.”

Going global

Internationally, Trump’s Liberation Day spooked many limited partners (LPs).

“Turbulence is not a good thing for capital allocation decisions,” says Tynan.

“When something like Liberation Day happens, the human nature for most LPs and investment committees is to pause and see what shakes out. Our job is to really convince them that this is actually an opportune time to buy.”

“We're going to buy in themes that we like, and that you are going to be invested in for a very long period of time.”

He says they're looking at a barbell strategy.

At one end they're looking for opportunistic investments in regions with the most forced sellers or structural issues, which is currently Europe.

On the other end you want sustainable cash-flow growth. Data centres are one such example, offering high yields and long-term growth. 

"What we're hearing from the LPs is should we just take a knee here, and our job is to try and convince them it's not."