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Agriculture and CRE market activity rebound continues

The Partners Fund benefits from improving asset valuations and investment opportunity growth

Rural Bank’s recently released “Australian Farmland Values” report has shown the resilience of valuations in the sector, with the median price of Australian farmland increasing by 12.9% in 2020 to $5,907 per hectare. This marks 7 consecutive years of growth and brings the 20-year CAGR to 7.6% pa. The number of transactions rose 14.5% to 8,187, rebounding from a historic low in 2019 and equating to a total of 8.2m ha of land transacted with a combined value of $10bn. Demand is being driven by strong, relatively consistent commodity prices, while excellent seasonal conditions have also provided farmers with capital to invest. Rural Bank also notes that, with some exceptions, COVID-19 has not dented agricultural returns or confidence. The analysts expect farmland values will continue to rise, underpinned by strong demand for agricultural assets, increasing profitability of farming operations in an environment of low interest rates as well as strong commodity prices.

Commercial real estate (CRE) market activity has also been resilient, with JLL data showing transaction values of $5.13bn in the March 2021 quarter, up 60% on year ago levels. Office transactions rose 10.5% to $2.63bn, as offshore investors emerged as key drivers of deal flow. Industrial property increased threefold (to $1.68bn) and shopping centre deals more than doubled (to $818m). Of these, 70% involved neighbourhood centres, large format retail or single tenant long lease assets. JLL expects liquidity for large retail assets (above $150m) to gradually improve through 2021 given the improvement in rent collection rates, attractive relative valuations, and the supportive retail spending backdrop. JLL also notes that hotel investment is gaining momentum amid improving prospects for travel.

The combination of buoyant market activity and price momentum delivers an ideal environment for the Partners Fund, providing higher levels of potential investment opportunities while also reducing the risk within the current portfolio. We continue to take advantage of these attractive market conditions. 

 

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