Improving valuations and returns are prompting Australian super funds to reassess global real estate allocations, as renewed confidence in the asset class begins to filter through institutional portfolios.
Real estate had endured a difficult period in recent years, with allocations pulled back as weak returns failed to attract sustained capital.
Over the past 18 months, however, a recovery in values and several quarters of more consistent positive performance have begun to shift sentiment, with superannuation investors increasingly weighing whether the asset class warrants a larger role in long-term portfolio construction.
Nuveen Real Estate’s CEO of real estate and natural capital, Mike Sales, said the firm’s research shows 63 per cent of global institutions remain underallocated to real estate, a gap that includes many super funds managing large, diversified pools of retirement savings.
That positioning appears to be changing, with nearly three times as many investors planning to increase allocations in 2026 compared to those intending to reduce exposure, alongside a 26 per cent year-on-year rise in US transaction activity as improving valuations support deal flow.
“I think investors now feel that the bottom has been reached, and therefore this is a good vintage to move forward from,” Sales said.
For super funds in particular, the reassessment is being driven by portfolio construction considerations, with heavy domestic exposures encouraging a shift towards offshore real estate markets such as the US and Europe to enhance diversification and support long-term member outcomes.
The trend is already playing out in capital allocation decisions, with Rest committing up to US$250 million to Nuveen’s US Cities Retail strategy as part of a broader push to expand offshore holdings and diversify its investment base.
Despite the improving backdrop, questions remain over the durability of the recovery, particularly given ongoing geopolitical risks and their implications for interest rates, which remain a key driver of real estate valuations and financing conditions.
Bill Abramowitz, portfolio manager on the firm’s US Cities Workplace strategy, said super funds continue to show varying levels of exposure and sophistication across alternatives, but interest in real estate remains firmly embedded within strategic asset allocation frameworks.
“Some are more experienced, some are a little bit less, but I think it’s certainly within the ether and having a solid, and in a lot of cases, a growing exposure to alternatives is a necessary, necessary part of portfolio construction,” Abramowitz said.
Australian super funds have already been active in deploying capital into alternative real estate strategies, with four funds, including Cbus Super, Hostplus and TWSuper, collectively committing around US$190 million to Nuveen’s US Cities Workplace strategy in 2023, targeting sectors such as healthcare.
Sector and geographic positioning is emerging as a key focus for super investors seeking to balance risk and return, with student accommodation highlighted as a strong domestic opportunity supported by rising enrolments and structural demand.
“We think that’s a pretty robust sector with new enrollments growing at quite a high rate. So we’ve always liked student housing and continue to do so,” Sales said.
Retail, particularly grocery-anchored centres, is also attracting renewed interest after a prolonged period of underinvestment, while the living sector and industrial assets continue to benefit from supply-demand imbalances that support long-term income generation.
Global allocation decisions are being shaped by macro conditions, with the US viewed as relatively insulated from energy shocks linked to the Iran war, while select markets in Europe and Asia are also drawing attention.
Demographic trends are further reinforcing the investment case, with Abramowitz pointing to the “silver tsunami” as a structural driver of demand for healthcare real estate, aligning with super funds’ long-duration investment horizons and retirement income objectives.
“We have a 68 per cent growth in seniors between now and 2040 so we know that that demand driver is out there, and seniors spend approximately three times what younger adults do on their health care needs.”
Alongside shifting sector preferences, super funds are also refining how they access real estate, increasingly using a mix of funds, co-investments and separately managed accounts, as they seek greater control, flexibility and alignment with member outcomes.
