Property market update with Jason Huljich – December 2018
Centuria’s Head of Real Estate and Funds Management, Jason Huljich, shares his view on current key property themes and the outlook for commercial and industrial property.
What is your role at Centuria Capital?
My role at Centuria Capital is Head of Real Estate and Funds Management. So I mainly oversee the $4.6 billion dollars of assets we have in both our listed and our unlisted property funds, and I work closely with our transactions team to analyse and acquire assets, and with our distribution and funds management teams working with our investor clients.
What are some of the current key property themes?
Some of the key property themes we are seeing at the moment is continued strength in the commercial and industrial markets, particularly in Sydney and Melbourne.
Sydney is being driven by infrastructure throughout the state, so the WestConnex and the Metro Rail, and Melbourne is being driven by high population growth.
Brisbane and Perth are a little bit different. They have a strong tenant base dedicated to the mining industry. When the mining downturn occurred a few years ago we have seen demand come off, but in the last six to 12 months we’ve seen their vacancy rates decline and all of the big mining users actually take sub-lease space off the market as they gear up for improved conditions.
Canberra and Adelaide have high headline vacancy rates but when you break it down it is actually a lot more positive. The high-quality assets have very low vacancy but the more older assets, obsolete assets have high vacancy, so they distort the overall measure.
We are also seeing a lot of demand from investors in this space, looking for high quality commercial and industrial assets. We have all the onshore groups – so the REITS, the high net worths, the family offices and the wholesale funds. But then offshore, where the Chinese mainland were big buyers three, four, five years ago – they have dropped away and buyers from Hong Kong, Japan and Singapore have really taken up their space.
As we close out 2018 calendar year, what is your outlook for commercial and industrial property?
Our outlook for industrial and commercial property going forward is for another very strong year. All the major banks forecasters have interest rates staying low throughout the year which definitely helps the real estate sector.
Commercial leasing in Sydney and Melbourne has been extremely strong, probably the strongest I have seen it in 20 years, which bodes well for continued rental growth going forward.
The industrial sector has been a standout. There has been a lot of strength there. We’ve had huge demand by offshore and onshore investors.
A new group that’s come into that space is the private equity industry. Blackstone has been one of the largest buyers of industrial assets in the market for the last two or three years and this has driven down cap rates to historical lows in the industrial market. Overall, we expect a very strong 2019.
How are your funds performing?
The IPD PCA index rates all the unlisted funds in this sector, and we have had six out of the top 10 for the last six quarters and, in the last two quarters, we have had one to five as well. You don’t get much better performance on the unlisted side.
On the listed side we’ve got the two REITs.
CMA has had some really strong NTA growth and we’ve really been transforming that portfolio – so we have been selling off the two industrial assets we have got in the portfolio and also selling down some of the smaller assets.
Very recently we just bought the Hine’s portfolio which was a $520 million portfolio of very high quality office assets, and that has just transformed that portfolio into a very high quality office sector specific REIT. At the moment we are the largest metropolitan office REIT on the ASX and once Investor Office Funds gets taken off the boards, as it’s going through a buyout, we will be the largest office REIT on the index as well.
CIP, which is our industrial REIT, has had great share price growth. It’s returning about a 6.5% income yield and that’s 1.1 billion high quality industrial assets.
What is Centuria’s Investment philosophy?
Centuria’s main investment philosophy is that we are asset specific buyers.
If we identify an asset we think we can make money for our investors, then we are a buyer of that asset.
We also like buying assets that might have issues so that we can get a discount on the purchase price of that asset if there is something there we think we can fix. So something like vacancy, we really back ourselves to lease up vacancy in assets and its definitely one of Centuria’s key strengths.
One of the other things that diversifies us from others is we also like to manage our assets internally. Where a lot of our competitors would outsource the facilities management, property management and maybe the asset management, we have all that in-house and we believe we get better results from that.
This video was issued on 3 December 2018 by Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231 149) and Centuria Property Funds Management No. 2 Limited (ABN 38 133 363 185, AFSL 340 304). The information is of a general nature only and has not been prepared taking into account your particular investment objectives, financial situation and needs. You should read the Product Disclosure Statement and assess whether any advice is appropriate before making any investment decision. You should also consider seeking the assistance of a professional investment adviser. Past performance is not a reliable indicator of future performance. The IPD/PCA Index is the Property Council/IPD Australia Unlisted Core Retail Property Fund Index. CA-CPFL-29/11/18-00886.