Beds and sheds in vogue with commercial property under the pump

The big real estate theme is sectors that will perform regardless of the wider economy and are not affected by the woes of traditional assets.

Commercial property deal-making is in the doldrums but big global investors continue to chase the worldwide theme of investing in “beds and sheds”, giving hope to the embattled sector.

Commercial volumes have plunged but the emerging “living” sector is holding up as big investors chase an exposure to residential real estate amid the housing crisis. This is driving a series of deals in areas including build-to-rent, student accommodation towers and even five-star hotels.

At the same time, top institutions are chasing stakes in businesses and assets that give them an exposure to e-commerce and logistics.

They are betting that Asia-Pacific economies will hold up and that big companies will restructure their supply chains and move to modern facilities to remain competitive as the economy slows.

They are chasing a series of local warehouse portfolios which are expected to trade this year at rates that show that the rise in investment yields has been offset by dramatic rental growth in key cities. The “living” side has seen the most action so far. In student accommodation, US private equity firm Blackstone has just struck a $500m deal to enter the local student accommodation sector with the purchase of the Student One business and big hotel investors are after the Ritz-Carlton portfolio, which comprises two five-star hotels in Melbourne and Perth.

The hotels – being sold by developer Far East Consortium, also for about $500m – are likely to be split up to get the best pricing, as trophy investors and institutions vie for the assets in a process run by real estate agents CBRE and McVay Real Estate.

On the shed side, billions of dollars of warehouses are in play, with some of the largest deals showing signs of getting done.

The emerging ‘living’ sector is driving a series of deals in areas including build-to-rent, student accommodation towers and even five-star hotels.

A $300m portfolio of warehouses in Brisbane and Perth put on the block by Singaporean group CapitaLand is to be split up, with local and international players taking pieces of the portfolio. Groups chasing the properties include listed property powerhouse Charter Hall, local firm Cadence (backed by private equity firm KKR), and Irongate.

The CapitaLand portfolio, being handled by real estate agencies CBRE and Cushman & Wakefield, is one of the first to look like transacting after a series of warehouse portfolios were put on the market earlier this year. In one of the largest plays, Middle Eastern sovereign fund ADIA put up a $3bn portfolio of 10 prime logistics assets into play. That portfolio has attracted worldwide interest, with the incumbent manager Logos continuing to engage with interested parties regarding the possibility of recapitalising up to a 50 per cent stake in the existing fund.

Industrial buyers have been chasing assets with shorter leases to capitalise on the rental upswing but the chance to partner on some of the best properties in the country is drawing interest from top international investors. Logos is being advised by Cushman & Wakefield and investment bank Jarden.

Canadian group Ivanhoe Cambridge is also looking to sell its interest in a $1.2bn portfolio of warehouses across Sydney and Melbourne that are run by Logos in a process managed by Colliers. Those deals sit alongside another major portfolio that is in play, with Stockland looking to find a partner on about $2bn worth of industrial properties and projects via CBRE.

The hunt for partners is faring much better than office blocks, where discounting has been widespread on both city and suburban towers. Shopping centres are also seeing more activity but prices are under pressure from higher interest rates.

High quality, older properties in these once sought after sectors are now trading at yields of 7 to 8 per cent, whereas industrial yields have remained tight.