London calling as Aware Super commits to $2bn British property venture

Australian superannuation funds are making bigger than ever plays offshore and one of the largest is targeting London’s office market at a time when few others are.

Aware Super has teamed up with British property manager Delancey Real Estate in the hunt for suitable investments in Central London. Picture: iStock

Superannuation heavyweight Aware Super is forging into London’s beaten down office market, seeking to pick up bargains in the wake of the market resetting, by striking a £1bn ($1.95bn) partnership with British property manager Delancey Real Estate.

The local fund has teamed up with the British manager and they plan to buy buildings mainly in and around the capital, where they see the initial opportunity, though their remit could expand in future.

The move is part of the trend of large superannuation funds seeking to benefit from the dislocation in office markets prompted by the pandemic and subsequent hikes in interest rates, although London remains a strong financial capital that continues to draw major companies even after Brexit.

The pair will look to invest in British real estate by identifying areas and assets that generate ­attractive risk-adjusted returns, with the initial focus on Central London office properties in prime locations. They want to capitalise on strong demand from investors and occupiers for Grade A assets amid significant structural and regulatory shifts that have hit the market and caused prices to fall.

They believe that a slowdown in new office developments, brought about by the Covid-19 pandemic, has created a scarcity of quality office space. At the same time there is also strong demand from major companies to lease top spaces.

As well as prime Central London offices, the pair will also look at undervalued retail, logistics, and mixed-use properties in Britain that could generate attractive cyclical returns. They have a wide-ranging mandate that covers buying stabilised assets, funding developments and backing recapitalisations.

Aware Super is already in Europe. It owns a 22 per cent stake in Get Living, Britain’s top build-to-rent developer, which was founded by Delancey. The fund also flagged it would keep scouring the market in order to build up its European property portfolio.

Aware Super head of international and deputy chief investment officer Damien Webb said that since opening in London last year the fund had been encouraged by the growing strength of the British economy. “By originating exciting deals across real estate, infrastructure and private equity we are building a balanced portfolio of resilient assets which we anticipate delivering strong returns for our 1.1 million members back in Australia,” he said.

Delancey chair Jamie Ritblat called out the opportunity for institutions looking to get into British real estate.

“Amid asset repricing driven by interest rate and regulatory changes, we see an attractive entry point in a weakened office market. Focus will start with prime Central London offices to create a liquid, sustainable and resilient portfolio, with investments in retail and logistics sectors in prime UK locations under consideration,” he said.

Aware Super head of property Alek Misev said that anticipating future trends and making counter-cyclical investments was a key theme of the fund’s global real estate strategy. “This has reaped strong rewards and we believe that undervalued Central London offices also fit this profile,” he said.

Mr Misev said there was an opportunity to buy well in London because there was not much money chasing offices, while there are pockets of the capital where there is no supply and tenant demand remains strong.

“We actually never thought that London was going to be forgotten by companies,” he said.

“If you look at London, companies still want to be there.”

Mr Misev said the fund could benefit from the quieter market as fewer large players wanted to buy. “That’s where you can get really good deals because people are on the sidelines,” he said. “We like it when there’s not much liquidity.”

Opportunistic funds were now chasing London assets, showing that prices had bottomed out, and others would follow, he said. “It’s a matter of time before the core money comes in and that’s when you see the upswing,” he said.

Aware Super’s latest move will take its holdings in Britain to more than £2bn after a commitment to invest £5.25bn in Britain and Europe over five years, which is to include property, infrastructure and private equity. It has also invested in green major Octopus Energy and London-headquartered bandwidth and data centre connectivity leader euNetworks.

Originally published as London calling as Aware Super commits to $2bn British property venture