Turning point arrives for big property funds

“Calling the bottom of any market is always risky, but the breadth of positive results this quarter, with 15 of 16 funds posting capital growth, suggests that we are closer to a turning point than at any stage in recent years,” said Ben Martin-Henry, head of private assets research for the Pacific at MSCI.

The index is widely viewed as the benchmark for the financial health of the commercial property sector. The valuations of assets, especially for office towers, plummeted amid the fallout from the pandemic period as interest rates jumped and bond yields – a key marker for values – also rose. Economic uncertainty also dulled the demand for space.

“After several years of value erosion, we’re now seeing consistent signs of stabilisation across the unlisted commercial property sector. Three consecutive quarters of capital growth [in the overall index] suggest that the sharp correction phase is behind us,” Martin-Henry said.

The MSCI index shows capital growth of 0.89 per cent in the third quarter 2025, bringing the year-to-date value increase to 1 per cent.

While modest, it represents a distinct turnaround from the 19.7 per cent loss sustained between 2022 and 2024. Martin-Henry said investors would now be focused on how quickly each sector can recover those losses, with some better positioned than others.

The four separate indices for wholesale funds dedicated to office, retail, industrial and diversified vehicles all posted capital gains in the third quarter, for the first time in three years.

Included in MSCI’s pool are some of the country’s flagship property funds, run by prominent managers such as GPT, Charter Hall, Lendlease and Mirvac.

Office funds have borne the brunt of the market correction, with capital values still more than 30 per cent below their previous peak. Confidence that the sector has reached its trough has finally begun to translate into value gains.

“Office funds have endured the most significant repricing, but there are now early indications of stabilisation,” Martin-Henry said.

“This quarter marked the first capital uplift in three years, which is an encouraging signal for the sector.”

Office funds recorded capital growth of 0.52 per cent in the third quarter, lifting their total return to 1.77 per cent for the quarter and 3.89 per cent for the year to date.

Jarden’s head of property, Lou Pirenc, said the MSCI result “highlights that we’ve passed the bottom of the cycle”.

“Which is positive for all things property, but particularly for companies that are raising capital for new growth initiatives. We’ve seen this in the last few months.

“It’s going to be easier for fund managers to raise capital and deploy it. So it’s positive for both balance sheet [owners] as well as the fund managers.

“The recovery clearly is going to be different for the different asset classes, depending on demand and supply and how much investor demand there really is, but it’s not often that all four major food groups are kind of showing positive returns.”

Among those fund managers is ASX-listed Charter Hall, which tapped the rising confidence with the launch two months ago of a $2.5 billion convenience retail fund. MSCI’s Martin-Henry said retail had “quietly become one of the better-performing sectors” after its improved income and relative pricing “had drawn renewed investor attention to a part of the market that had been deeply out of favour”.

Charter Hall managing director David Harrison noted he had identified the 2025 financial year as the inflection point in the market during the company’s results call in August.

“The MSCI results just prove this to be correct, with positive capital growth and a rising distribution yield across funds as debt costs fall,” he said.

Harrison expects convenience retail to be an early winner, with capital growth and income yields outpacing other sectors. The overall direction of the unlisted sector would spark inflows from both domestic and foreign investors, he said.