Listed property groups that own office towers and warehouses have confirmed their dominant position with commercial property giant Dexus unveiling a $656 million jump in property valuations, even as malls are under the pump.
The listed real estate investment trust sector has seen more than $7 billion of fresh equity raised this year and big landlords have expanded further into areas including convenience-oriented retail, with Charter Hall this week taking a stake in a portfolio of BP service stations.
Centuria Capital also this week snaffled up both industrial and office assets for its listed vehicles, in an indicator of the top returning areas.
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But retailers remain under the pump as Harris Scarfe has collapsed into administration and its landlords now face either store closures or lower rents once a new owner is found.
These forces ripping through the property sector are favouring both commercial property owners and funds managers with the listed Dexus benefiting because of its focus on office and industrial assets.
Dexus announced that 109 of its 118 assets, comprising 43 office properties and 66 industrial properties had been externally valued, and there had been a 4 per cent increase on prior book values for the six months.
“Investment demand for quality office and industrial properties combined with a lower for longer interest rate environment continue to flow through to the capital values of our properties,” Dexus chief executive Darren Steinberg says.
The weighted average capitalisation rate across the total portfolio tightened 17 basis points to 5.09%.
The majority of the office portfolio valuation uplift was driven primarily by capitalisation rate compression and market rent growth.
One Farrer Place in Sydney lifted in value by $90.2 million and the MLC Centre, also in Sydney, increased by $52.7 million.
Valuation increases in the industrial portfolio were driven by continued capitalisation rate compression at properties across key eastern seaboard markets supported by an increase in transactional evidence.
Steinberg says that there has been a “significant increase” in inquiries both from domestic and offshore investors seeking to invest directly in office and industrial properties through the company’s funds management business.
“This increased interest is partly a function of the relative pricing at an attractive spread to bonds and rent growth prospects in Australia compared to global cities. As a result, we expect to see further valuation increases over the next six to 12 months,” he says.
Investors are also bullish. “We agree that investor demand for office and industrial assets remains robust and while yields have compressed,” Credit Suisse analysts say. “We think investor concerns about Dexus’ exposure to the Sydney office market are overblown.”
This article originally appeared on www.theaustralian.com.au/property.
