Rewards flow for retail, office investors

Dexus Property Group has sold an office building at 108 North Terrace.
Dexus Property Group has sold an office building at 108 North Terrace.

Retail and office landlords have led the listed property sector over the calendar year to date as investors search for yield and the stability of landlords with long-dated tenants.

Groups including Dexus, Vicinity, Scentre and Stockland have posted returns of more than 17%, while expansion and corporate activity has also propelled Astro Property Group and Rural Funds Group to lead the sector with returns of more than 26 per cent.

REITs have emerged as one of the bright spots of the local equities markets throughout the year, outperforming the local broader S&P/ASX 200 index by 24% as investors have searched for yield and comparative stability of property exposure.

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“We expected the A-REIT sector to perform very well over the last year and that’s exactly what it did … globally Australia property yields are attractive and remain so; fundamentals across retail, office and residential are solid; and locally REITs have been a safe haven from volatile commodity prices, and greater competition in a raft of industries,” UBS analyst James Druce says, noting that Australia has been the best performing REIT country this year in both US dollar and dollar terms.

Dexus has emerged as one of the strongest performers, rallying after an unsuccessful tilt at Investa Office Fund to deliver a return of more than 23.6% since the start of the year.

Dexus is selling the HWT and IBM towers in Southgate.

Dexus is selling the HWT and IBM towers in Southgate.

“People are responding to the fact you’ve got a three-year window of very strong office rental conditions, but people are also choosing asset heavy stocks because they know they are leveraged to cap rate compression,” CLSA analyst Sholto Maconochie says.

“When you look at the 10-year government bond rate, you know that cap rates have to come down even more … some of the stocks are already pricing this in.”

Shopping centre owner Scentre also led performance, rising almost 20% as investors clamour for blue chip stocks that offer yield and stable returns from large portfolios on long-dated leases.

“In a risk-off environment, the rent collectors outperform the developers,” Druce says.

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“Scentre and GPT did particularly well as large liquid stocks, with strong balance sheets and exposure to improving retail sales. Mirvac underperformed as investors continue to harbour concerns over a slowing residential market and oversupply in the apartment market.”

Volatility on international markets took on toll on stocks including Goodman Group and Cromwell Property, which have big exposure to global markets.

Cromwell emerged as one of the worst performers, falling 4.29%, with investors rattled by European exposure.

Growthpoint has also slid backwards 0.79% following its tilt for the GPT Metro ­Office Fund with the battle hinging on winning the support of GMF’s independent board committee.

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