Office values rise higher for listed landlords
Australia’s largest office tower landlord Dexus expects the value of its office and industrial portfolio to rise even further in the coming year, after booking in a $405 million uplift in the past six months.
The revaluation follows a separate industry analysis by Cushman & Wakefield, which shows the value of office assets owned by the major listed property trusts is rising at almost double the rate to that of retail real estate.
For Dexus, the valuation uplift represents a 3.1 per cent increase on its previous book values. Led by Darren Steinberg, the property trust had already booked in $1.13 billion portfolio revaluations for its 2018 financial year in June.
At that point, its own portfolio had risen to $13.3 billion, with another $13.9 billion in managed funds.
Mr Steinberg said there was still an opportunity for capital values to increase further over the next 12 months.
“The key point is that we are still seeing some cap rate tightening in the market,” he told The Australian Financial Review .
“As we move forward from here it will be the combination of declining incentives, rental increases and less downtime that will drive valuation increases in the key markets of Sydney and Melbourne.
“It will be that [combination] more than cap rate tightening that impacts valuations from here.”
Cap rates tighten
The bulk Dexus’ office portfolio valuation uplift to December 31 was due to further capitalisation rate tightening and increasing market rents, particularly in Sydney
The average cap rate in its office portfolio tightened 15 basis points to 5.22 per cent. In the industrial portfolio the rate fell 26 basis points to 6.14 per cent.
Large format retail landlord Aventus was also among the early bird property trusts reporting portfolio revaluations. It booked a $25 million net valuation increase on its $1.9 billion portfolio.
That gain was driven by income growth and development initiatives as cap rates remained unchanged at 6.7 per cent.
The Cushman & Wakefield report tracked the value and cap rates of assets in the listed portfolios between 2016 and 2018 and took in 795 office, retail and industrial properties, at least part-owned by 19 real estate investment trusts.
Book values between December 2017 and June 2018 on average continued to increase, although growth in the total asset value of retail property of 3.3 per cent was well below the 6 per cent achieved by office assets.
The analysis noted that no sub-regional centre owned by a listed trust traded at above book value in the 2018 second half, including those among a $573 million portfolio of assets sold off by Vicinity.
It was a different story in the office property sector though, the report noted.
“The high value of Sydney CBD office assets relative to other markets was clearly demonstrated within the data,” it said.
“The number of assets worth over $1 billion increased from six to ten between December 2016 and June 2018, and all were prime-grade Sydney CBD assets.”
