Charter Hall upgrades as property cycle turns around

Real estate funds giant Charter Hall says the property market upswing has begun, but fewer new buildings are being built as costs soar.

Charter Hall Group CEO David Harrison.

Property funds giant Charter Hall has upgraded its earnings guidance as it believes that big investors will start chasing more large commercial real estate assets as values stabilise.

Chief executive David Harrison says that once the market was shifting into recovery mode, asset values would start growing in line with rental growth rather than lagging.

“People then become more constructive about investing further in real estate, and that drives equity flows and more activity,” he said.

With big pension funds again turning their eye to real estate, listed investors are also backing Charter Hall’s capacity to again invest well early in the cycle.

The company picked areas like industrial and long-leased assets early and is now chasing more opportunities in areas like convenience retail and logistics.

Charter Hall shares added 97c to $17.20 as investors believe the company is leveraged to a property market recovery.

Charter Hall owns half of 52 Martin Place in Sydney.

Mr Harrison pointed to the impact of rising construction costs, that have already hit the housing market and are now starting to spill over into other areas.

“It’s really difficult to make new developments stack up unless you’ve got really cheap land, so there’s going to be limited supply across the whole sector,” he said.

He flagged the company would be more active in areas like net lease properties, pointing to the privatisation of pub landlord Hotel Property Investments.

Charter Hall is completing office projects in major capitals, but most, like Chifley South in Sydney, are at the premium end of the market and heavily pre-committed. The company also called out projects in the industrial sector, where it has identified a series of sites that are suitable for data centres.

The company turned in a $61.1m in profit and Mr Harrison said that current market pricing offered attractive long-term returns for stabilised real estate products.

“It is our expectation that capital deployment will accelerate to take advantage of market conditions and typically accelerates further as the upward cycle gathers pace,” he said.

The company’s fiscal 2025 earnings guidance has been upgraded from 79c to 81c per security for post-tax operating earnings. It kept its distribution per security guidance at 6 per cent growth over the last financial year.

Mr Harrison said the investment management platform was performing strongly and it had kept strong investor relationships.

“We expect investor customers to continue to be more constructive toward deployment of new capital invested in the platform. The first half secured $1.6bn in gross equity inflows, which is equivalent to the total gross equity raised for the 12 months in fiscal 2024,” he said.

This half has seen acquisitions of $2.2bn, which was well above the $1.7bn in acquisitions made in the last financial year.

Mr Harrison called out strong population growth over the next decade of 3.9 million people.

“To accommodate this growth, Australia will need to build additional supply across all real estate sectors, the size of Brisbane and Adelaide combined to accommodate this population growth,” he said. “We are clearly now at an inflection point in the market.”

The company’s property funds bumped up to $66.4bn as it bought and developed new properties, though there was $300m of devaluations. Development completions hit $800m in the last 12 months and the company said it now had a $13.3bn pipeline.

Originally published as Charter Hall upgrades as property cycle turns around