Major offices receive healthy valuations amid coronavirus

45 Clarence St in Sydney.
45 Clarence St in Sydney.

Office powerhouse Dexus has completed the sale of a major Sydney tower at a price higher than its book value a year ago and flagged relatively strong property valuations, showing a dip of about $200m, as prime office towers hold up.

The group valued almost all of its properties and is benefiting from top office buildings still being chased by investors and demand for logistics assets rising at a time when shopping centre values are diving.

Dexus announced that 107 of its 118 assets, comprising 42 offices and 65 industrial complexes, had been externally valued, and these had have resulted in a total estimated decrease of about $195 million, or 1.2% prior book values.

“Our high quality property portfolios were in a strong position as we entered into a period of uncertainty driven by the onset of the COVID-19 pandemic, with their high occupancy levels, diversified tenant base, and limited new supply coming online in our key office markets,” Dexus chief executive Darren Steinberg says.

He said the valuations showed the resilience of the property portfolios in the uncertain environment. “The office portfolio experienced a circa 1.5 per cent decline on prior book values as a result of the softer assumptions relating to rental growth, downtime and incentives over the next 12 months,” Steinberg says.

The industrial portfolio lifted by about 0.7%, with the Dexus chief pointing to the investment attractiveness of the asset class, which has remained attractive despite harsher economic conditions.

“While the operating environment remains uncertain, over the next six to 12 months we expect quality office and industrial asset values to remain resilient with pricing supported by an attractive yield spread over bonds and lower for longer interest rate environment, with some impact from a softer outlook for rental growth, downtime and incentives,“ Steinberg says.

He also points to a pick up in offshore interest in local towers.

“Investment demand for quality assets is expected to remain positive, with Australia well positioned for a recovery in foreign investment due to efforts relating to the control of the COVID-19 pandemic ahead of other countries and our longer term economic growth prospects,“ he says.

Dexus also confirmed the sale of the tower at 45 Clarence St, Sydney, for $530 million, which it says is in line with its value last December. It is understood that CBRE brokered the deal, but it declined to comment.

The 28-level, A-grade office tower across 32,000sqm in the western corridor of Sydney’s financial district and was built in 1990. It is fully occupied and had a weighted average lease expiry of 3.3 years.

It was picked up by Peakstone, a Singapore headquartered manager of Asian capital, and is subject to the purchaser receiving FIRB approval.

Steinberg says the deal reinforces the resilience of prime quality office asset values in the Sydney CBD and it will pour capital into higher returning opportunities.

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