Around Australia more and more office buildings have large vacancies, but Australia’s landlords aren’t budging on pricing or their plans to build even more skyscrapers.
Mirvac’s proposed addition to the top of 90 Collins Street that has now been shelved as it focuses on other developments.At the same time interest rates increases have put pressure on Australia’s biggest landlords.
Holly Bailey, director tenancy advisory, Kernel Property, is at the coalface of the office leasing market. The Australian Securities and Investments Commission and fund managers have been upping the pressure on several large property groups to write down the value of their assets, with some market watchers estimating values could fall by 20 per cent this year.are yet to materialise, much to the frustration of the investment community.
Hayes says current values of most office towers apart from prime, largely full buildings are unsustainable. “Most of these landlords are cannibalising their own investments by building these very large buildings that we don’t need.”Dexus also recently put up for sale two towers in Sydney – 44 Market Street and 1 Margaret Street. The group quietly reduced the values of the properties by 6 per cent between June and December this year. A spokesperson for the group confirmed the reductions but noted there had been strong interest in the sale.
That said, Robbins also believes that many listed group have been sold down too heavily in expectation of much more severe valuation cuts than warranted.Andrew Parsons, a global REIT investment specialist and the executive director of Resolution Capital also believes values need to be reduced, but the severity of the cut will be dependent on asset location and quality as tenants seek amenity sustainability and flexibility – a sentiment shared by Hayes and Robbins.
“There are a number of buildings that will come under pressure due to shifting tenant demands, however the suggestion that asset values across the sector will decline up to 20 per cent is off base in my view.”Peter Braig GPT is also seeing greener shoots after its vacancy rate across its office towers hit 12 per cent. A spokesman says: “Since the beginning of the year we have observed increased visitation and vibrancy in the Sydney and Melbourne CBDs, alongside higher levels of utilisation within our office assets and this has coincided with increased levels of tenant leasing enquiry.”
Robbins says the investment has performed very strongly with significant increases in retailer turnover leading to strong rental outcomes at the centres.
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