Unlisted property has underperformed listed in recent years, but the sector looks like it is about to bounce back, JANA’s Mary Power says.
A key driver for institutional investors with multi-asset portfolios, such as super funds, to invest in unlisted property is for this asset class to act as a buffer to equity market risk. Knowing unlisted assets don’t decline as much as equities during a downturn allows them to hold relatively high equity allocations.
But increasingly, asset owners are blending unlisted property investments with more volatile listed property exposures, partly because of a lack of access to certain regions or the inability to do direct unlisted deals.
Yet, the past five years have shown just how different the experience of investors in listed property can be compared to unlisted property.
At the publication of super funds’ full-year results over 2025, ratings house Chant West estimated unlisted property made a modest 2 per cent to 5 per cent return after two years of negative results.
Listed property, however, seemed to have held up much better over the full year, with international property coming in at about 8.4 per cent for the full year, while Australian listed property did even better at 13.8 per cent, according to Chant West numbers.
The poor performance of unlisted property was partly due to the lingering effects of COVID and the rapid interest rate rises that followed, Mary Power, Head of Property Research at JANA Investment Advisers, said in a recent [i3] Podcast.
What happened in 2020 was COVID occurred and there was this significant lockdown over quite a long period of time; never good for the built form that has leases in place. They have contractual leases in place, but you still need people to buy things at shopping centres and office buildings to be occupied for those leases to be sustainable and of benefit to the tenant
“What happened in 2020 was COVID occurred and there was this significant lockdown over quite a long period of time; never good for the built form that has leases in place,” Power said.
“They have contractual leases in place, but you still need people to buy things at shopping centres and office buildings to be occupied for those leases to be sustainable and of benefit to the tenant.
“So I think that was a very difficult period.
“And then, of course, we headed in June ‘22 into the start of 13 interest rate rises, which was a significant headwind to the property sector because it had performed quite well, even through COVID up until mid-2022, and then we started facing higher interest rates.
“And the higher interest rates, in fact, had been quite difficult for cap rates at the time. Cap rates expanded; capital values went down in most cases.”
Listed Property Reacts Early On
Although listed property also faced the difficulties of rising interest rates, the sector responded much earlier to COVID and experienced a sharp drawdown in early 2020, including Australian real estate investment trusts (AREIT).
“The listed [sector] is highly correlated to equities. If I go back to March 2020, then the AREIT sector fell by 46 per cent, so that was a very stark fall compared to what the unlisted property index was doing at the time,” Power said.
Besides, the AREIT index has some peculiarities that make it behave quite differently from the unlisted space.
“The Goodman Group makes up about 39 to 40 per cent of the AREIT index, so that will rise and fall depending on how Goodman has performed over a period of time,” Power said.
The Goodman Group makes up about 39 to 40 per cent of the AREIT index, so that will rise and fall depending on how Goodman has performed over a period of time
Goodman Group turned out to be a strong performer in the years following the initial COVID drawdown as it was well positioned to deal with the shift towards e-commerce and the reshaping of supply chains.
The company is heavily exposed to industrial and logistical properties, including warehouses, fulfilment centres and data centres, which experience increased demand, while retail and office properties bore the brunt of the pandemic malaise.
For example, Goodman saw positive revaluations grow by $2.9 billion during the 2020 financial year, largely on the back of increased demand for industrial and logistics assets.
This strong performance helped lift the performance of the overall listed sector compared to unlisted assets.
Positive Outlook for Unlisted Property
But the future is looking brighter for unlisted assets. This year has seen an improvement in returns for the unlisted real estate sector, with even retail and industrial funds posting positive figures.
In a comment on third-quarter results in the industry, property company Dexus said all the unlisted real estate sectors recorded sharply improving returns in the year to June 2025 after a period of weakness.
Retail and industrial funds reported returns of 7.6 per cent and 6.2 per cent per annum, respectively. Office funds also improved, although they still posted a small negative return of 0.6 per cent for the year.
“A positive capital return for diversified funds in the month of June indicates the valuation cycle bottomed in H1 2025,” Dexus said.
The company expects returns for all sectors to move back above 7 per cent per annum within 12 months as revaluations turn positive.
Power seemed to be in agreement with this sentiment.
“The MSCI Mercer unlisted survey for property is indicating that this is a third quarter of positive returns. So that’s fantastic,” she said.
An improvement in market sentiment, higher economic activity and falling rates have all helped support the property market, but it is also due to the lack of supply, she said.
“I think we’re in a reasonable place with valuations now and, going forward, the real green shoots for property are the fact that there is a lack of supply,” she said.
We're in a reasonable place with valuations now and, going forward, the real green shoots for property are the fact that there is a lack of supply
This supply is made even more muted by tenants seeking out buildings with high sustainability ratings.
“So the universe of desirable buildings has actually shrunk on the basis of sustainability. And that’s a good thing,” Power said.
Further support is found in the office sector, where occupancy rates are increasing as more companies mandate a return to the office. Power said this has been particularly clear in the United Kingdom, where businesses are looking to return to the city centre, but don’t always estimate the required space accurately.
“With this lack of supply, people are actually getting their forward projections wrong. I was over in the UK and there was a big investment house over there that had been in Canary Wharf and was coming back to London, and they miscalculated by some enormous amount the seating, whether it was 3000 seats or something,” she said.
“Instead of being able to go into one location back in the city, they actually had to spread it out across a number. So people aren’t necessarily getting the forward-looking labour employment seating arrangements right.
“It is putting more pressure on certain buildings within certain sub-locations. That is a positive thing because it’ll drive rents and that will drive returns.”
But she also warned there were still pockets of weakness, including the Melbourne property market, which suffered more than other markets during the COVID lockdowns.
“Not everything is on the rise and our one call out at this moment would be the Melbourne office market at this stage. Again, back to COVID, it had severe lockdowns, longer time [frames before] returning to work,” she said.
“And there have been some punitive taxes that have been introduced into Victoria around the foreign owners surcharge and that has deterred offshore investors from coming into Victoria.
“So we’ve seen a lot [fewer] sales in Victoria than anywhere else. Sales evidence allows the valuers to actually have some sort of basis for undertaking evaluations. Melbourne is still a little bit difficult.”
_________
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.