Blackstone spots opportunity in data centres as real estate sector on cusp of ‘golden age’

Falling interest rates, population growth and tight supply are fuelling bullish forecasts from top investors, who say capital should flow into property despite global market volatility.

MA Financial vice chairman Andrew Pridham has warned against negative interventions in the housing market. Picture Renee Nowytarger. Australian

Australian real estate could be headed for a golden age on the back of lower interest rates, constrained supply and the emergence of the private credit sector alongside traditional bank lenders.

That was the view of top executives at the MA Alternatives Summit who argued that capital should invest now despite global volatility, as they presented the bullish view that the worst had passed, and that conditions were ripe across a range of sectors.

Blackstone’s head of real estate Australia Chris Tynan called out opportunities thrown up by the digitisation of daily life and urged investors to look past short-term market turbulence prompted by the prospect of trade battles.

“We think that ultimately there will be deals that get done across the trade front … [The US wants to do a deal with their largest trading partner, China, but there’s going to be some strategic separation in certain areas,” he said.

He said it was an interesting time to deploy capital into “dislocation, if there is some around”. He added that there were some opportunities emerging in Europe, though the firm concentrates on longer term themes like digitisation.

MA Financial vice chairman Andrew Pridham, said that the tariff war was effectively over after president Trump had won concessions from major partners. He pointed to the firm’s bullish assessment of falling oil prices, interest rates and a geopolitical environment that was mostly settling down.

Blackstone’s head of real estate Australia Chris Tynan

“Particularly in real estate we’ve got almost the holy trinity of falling interest rates, strong economic demand and population growth and shortages of supply,” he said.

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Mr Tynan said the office sector faced tough conditions even before Covid with work from home impacting values, as higher rates also struck. But he said the supply of new towers in east coast cities was under control, with Sydney to perform well. Retail was also benefiting from the lack of new supply, he said.

Logistics is coming back to the field, albeit off a very high base, partly as there has not been overbuilding. “The supply response has been very muted,” he said.

Mr Tynan said now was an opportune time to invest. “We’re likely to see an interest rate declining cycle which is a tailwind for real estate,” he said.

Blackstone is also working across both real estate and infrastructure on deals like data centres, with the aim to find durable assets that also have operating businesses that allow the firm to add value and expand. “The opportunity is that you can provide those cash flows, and you can really outperform,” he said.

Mr Pridham said that a golden age for real estate could emerge but warned against potentially counter-productive intervention in the property market.

He said that regulatory settings were going to be really important “particularly in residential, which clearly is a highly politicised asset class, but it’s also an asset class where there is huge imbalance between market supply and demand”.

“The policy settings of the various state and federal governments are going to have to be very carefully nuanced to balance the provision of supply and the provision of capital, and not to politicise it to the point where its not attractive to capital,” he said, adding that construction costs would continue to rise due to the shortage of builders.

Mr Tynan said that residential from an offshore point of view was the biggest ‘no-brainer’ asset class due to factors including falling supply and the rising population. He cautioned that the tax regime was a problem for foreign groups which invest through MIT schemes in build-to-rent projects, where there are requirements for affordable housing, making them uncompetitive against local residential developers.

He noted the surge in private capital where Blackstone has long been a major, albeit low profile player, since the GFC saw banks step back from parts of real estate lending.

He called for greater understanding of market dynamics. “Saying that real estate credit is just one flavour is to oversimplify,” he said.

He contrasted major houses, with robust credit processes and capacities, and the rise of “two man band” entrants. “They’re both called private credit, and that’s a problem,” he said.

Originally published as Blackstone spots opportunity in data centres as real estate sector on cusp of ‘golden age’