Aware Super's Damien Webb

Last year industry super fund Aware Super cut the carbon footprint of its holdings in equities by 40 per cent in one big divestment hit and now Australia’s second-largest superannuation fund has its sights set on housing affordability and decarbonising its property portfolio.

The super fund’s head of income and real assets Damien Webb says that lowering the carbon footprint of its real estate and infrastructure investments is part of its net zero by 2050 strategy.

This will include putting low carbon technology such as solar and batteries into its developments.  

The super fund, which has $135 billion under management, wants to grow its $8 billion real estate portfolio by investing to get a rate of return 5 per cent in excess of inflation. But the focus has shifted away from office and retail, which have traditionally been the mainstay for institutional investors.

While Webb expects people to return to the office – at least a few days a week – and shopping centres, he says there is no doubt these sectors are experiencing headwinds because of the pandemic.

That is encouraging the super fund to shift its focus more towards logistics and industrial property.

“This is the flipside to the downside of shopping centres. People are still buying.”

Because people don’t want to wait too long for their goods, the focus will be on developing efficient supply chains and developing logistics centres close to metro areas.

Residential is another priority area. The fund has committed to doubling its spend from $450 million on “key worker affordable housing” that offers below market rate rentals to critical workers such as nurses and emergency workers who have been priced out of the urban centres where they work.

Webb says that the product is a specialist build-to-rent product that offers rentals at a 20 per cent discount on the market rate for key workers.

Housing affordability is a key issue for members of the super fund, he says.

The super fund, previously called First State Super and set up for NSW public sector employees has membership dominated by women, many of whom are shift workers, including nurses, emergency services workers and teachers.

“What we seeing in our membership and society in general is that key workers that care for our society are continually getting pushed out of denser metro locations, and subjected to long commutes to get to their shifts.”

While the super fund has become “increasingly mindful of its social licence” the key worker housing also exceeds requirements on returns, Webb says.

“Right now, we find that the demand for quality newly built apartments in good locations near their places for market at 80 per cent of market rent is very popular, clearly, so what we’re finding is that our lease up times and vacancy rates are really good.

“For a development with 100 units, instead of taking a year or two years to get it leased up, it takes six months.”

He says that even throughout the pandemic people would choose to stay in their below market rate accommodation as it was still affordable, instead of move in with, say, their parents.

“Our occupancy rates remain very, very high, so yes getting a lower rental and the fact that can lease them very quickly and there’s high occupancy mean the rates of return are intact.”

The units are also suitable to return to the private housing market down the line.

“These are high quality finished apartment that we have either developed ourselves or procured at a good rate of return.”

The offering falls under the broad definition of built-to-rent, where housing is offered for long term rent from an institutional landlord. Interest in the sector has rocketed, according to a new report from CBRE, which follows planning and tax policy changes in NSW and Victoria intended to “level the playing field” for the emerging asset class.

The super fund will also focus on retirement villages, Webb says.

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