In its latest ‘Australian Capital Markets – October 2023’ report, real estate service company Savills has found that superannuation assets are set to grow efficiently over the next decade, boosted by population growth and increases to the Superannuation Guarantee.
The research highlights the large and increasing pool of capital that superannuation funds are accumulating.
The potential for this growth to translate into a rising source of demand for commercial real estate assets, with profound implications for capital markets, particularly in sectors underpinned by structural tailwinds such as industrial and logistics, data centres, healthcare and life sciences, and multifamily residential and Build to Rent.
Australia has a large pool of superannuation savings, which totalled $3.54trn as at Q2 2023, equivalent to 140% of nominal GDP.
According to the Thinking Ahead Institute’s 2023 Global Pension Assets Study, Australia had the fifth largest pool of retirement assets globally in 2022 among the 22 markets it tracks behind the US, Japan, Canada, and the UK – relatively large compared to the size of the Australian economy, which is the thirteenth largest in the world in nominal US dollar terms.
The pool of superannuation savings will grow significantly over the next couple of decades.
Total superannuation assets are expected to rise to between $9trn and $10.5trn by 2040 (around 185% of GDP), equivalent to 6% to 7% average annual growth. This growth could translate into an additional $25bn to $30bn for investment in property per year, equivalent to over 40% of average annual commercial property investment in Australia over the past decade.
Underscoring this potential, the world’s largest pension fund Japan Government Pension Fund has recently committed $500m to Blackstone’s Real Estate X fund – this fund is c.$30.4bn and 7% of the fund will be allocated to Australia (c.$2.1bn).
Strong population growth in Australia and constrained housing supply are likely to support the development of the multifamily and Build to Rent sectors, while population growth, increasing e-commerce penetration, and a reassessment of supply chains (including the potential for on-shoring or near-shoring and a shift to just-in case inventory management) will continue to underpin occupier demand in the industrial and logistics sector.
These tailwinds are prompting some of Australia’s largest super funds such as AustralianSuper and Australian Retirement Trust to restructure their property portfolios to shift towards industrial and logistics and alternative assets, Savills found.
