It was a double-digit return last year for Australia's biggest unlisted property funds, sustained by a strong performance from Investa Commercial Property Fund and the AMP Wholesale Office Fund, both office-focused funds, Financial Review reports.
Last year, there were 12.7% returns from 15 office, shopping centre and industrial funds as shown by Mercer/IPD Australia Monthly Property Fund index. Since the global financial crisis, it's the highest recorded annual return catapulting the funds' net asset value at $53 billion.
Using the index which is released monthly, the performance of different unlisted property funds are compared, and this is considered by various institutional investors as one of the most popular alternative investments.
ICPF had a total one-year return of $3.3 billion or 17.1% and is recorded the best performance of all funds apart from one single-asset fund.
"We have continued to execute our very clear investment strategy over the last few years to turn ICPF into the highest quality prime office CBD prime portfolio office fund in Australia," said fund manager Peter Menegazzo.
It is an unsettled year for ICPF yet it enjoyed generous returns. In the midst of Morgan Stanley Real Estate's plans to divest the Investa business and the management platform, ICPF is lurking and negotiating.
"Despite the corporate activity across the group during 2015, the results demonstrate the Investa team has continued to focus on the most important element of our business, being investment performance for our clients," Mr Menegazzo said.
OFFICE SECTOR TO PERFORM STRONGLY
"From here, our view is that office is expected perform strongly again in 2016. Core real estate will continue to remain in favour due to ongoing equity market volatility. We do think there will be further cap rate compression, but more importantly, returns will be driven more by rental growth as occupier markets strengthen and incentives continue to trend down."
The year's second best performer is AMP's office fund. The $3.7 billion portfolio has seen an enormous reshaping yielding nearly $500 million in asset sales, prime office tower acquisitions amounting to $1 billion as well as the strengthening of the balance sheet.
"We have been been looking to improve the quality by buying real estate with long lease terms such as 200 George Street and the Australian Technology Park in Sydney and then selling non-core assets," said AMP Capital head of property funds management Chris Judd.
Majority of the portfolio - more than 95% - are in the high-performing markets of Sydney and Melbourne, says Mr Judd, who added that AMP is set to kick off a fresh $300 million equity raising.
The final quarter proved robust valuation gains for many office funds - it was $140 million or 4.5% for ICPF and 3.6% for AMP.
Another standout was the GPT Wholesale Office Fund at $5.5 billion.
"It has been another strong year for GWOF, which continues to be the number one performing wholesale office fund over three, five and seven years," said fund manager Martin Ritchie.
"There is high demand from both domestic and global capital to invest in the wholesale office market, especially in funds which have delivered consistently solid returns. We anticipate another good year for commercial property, supported by improving fundamentals, especially in GWOF's core office markets of Sydney and Melbourne."
Unlike office funds, retail funds just weren't performing as high. While AMP Shopping Centre Fund and the QIC shopping Centre Fund posted double-digit returns, Lend Lease-managed Australian Prime Property Fund retail on the other hand dipped to single digits.
"The shopping sector was not hit as hard during the GFC so it has been more steady as she goes," Mr Judd said.
