Prime office towers yet to peak: Dexus

Prime office towers yet to peak: Dexus

21 December 2018

Australia’s largest office tower landlord Dexus claims the value of its prime office towers has not yet peaked and expects it to rise further over the next year, reports The Australian.

The property landlord posted a $405 million lift in values for the half year across its office and industrial portfolio.

The group had 108 of its 112 properties—46 offices and 62 industrial buildings—revalued as at December 31. The uplift will add 40 cents to its net tangible asset backing.

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.

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, reports the AFR.

Following this week’s announcement, the group (DXS), which manages a $27.7 billion property portfolio, saw its shares rise 11 and a half cents to $11.095 in early afternoon trade.

Dexus chief executive Darren Steinberg said unquenched demand for property with solid income from global and local investors was still driving sales and prices across the capital cities.

“Taking this dynamic into account along with the current yield spread over the bond rate, we believe there is still an opportunity for capital values to increase further over the next 12 months.”

“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,” he added.

Dexus owns and manages office buildings around the country saying the majority of the rise in its office values was due to a further tightening of yields and rental growth in Sydney, where there has been little new development.

Its MLC Centre in the Sydney CBD saw a $27.8m rise in value on the back of increased rents and a 12.5 basis point sharpening in the capitalisation rate of the office tower component.

Dexus’s development 100 Mount Street in North Sydney, which is nearing completion, posted a lift of $33.1m million following new leases and a 12.5 basis point tightening in the property’s capitalisation rate.

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.

New research from Knight Frank reveals that investment in office space is on track to hit a record high in 2018, with $18.3 billion expected to have transacted within the asset class across six major Australian cities by the end of the year, says a separate AFR report.

The biggest deal of the year, Oxford Group’s expected $3.4 billion takeover of Investa Office Fund and its $4.4 billion trophy office tower portfolio, will push investment volumes above last year’s total of $18 billion.

In Sydney, $9 billion worth of office space will have been purchased in 2018, followed by $3.9 billion in Melbourne and $3.3 billion in Brisbane.

Transactions in Perth have surged to $1.1 billion, its strongest activity since 2013.

Melbourne CBD’s office vacancy rate is the tightest in the country at 3.6 per cent—a 10-year low—while just 4.6 per cent of offices in Sydney’s CBD were vacant over the first six months of the year, and that figure is expected to drop to just 3 per cent by the end of 2019, according to BIS Oxford Economics.