Barrenjoey have painted a bleak outlook for the office market in Sydney, forecasting office values could fall by as much 20 per cent.
Some of Sydney’s top corporate addresses, including Salesforce Tower overlooking Circular Quay and the home of JPMorgan on Castlereagh Street, could tumble in value by 15 per cent to 20 per cent, wiping off hundreds of millions of dollars, as office values endure a savage reset, according to Barrenjoey analysts.valuations here significantly lag what is happening abroadThe proposed sale of a stake in Salesforce Tower will set a benchmark for office values in Sydney.
“We forecast book values to be written back on average by around 20 per cent across office portfolios and cap rates to expand by 100-125 basis points.”Capitalisation rates are an industry metric akin to yields, which move inversely to values. Cap rates for commercial property have been to increase as interest rates rise, but so far, there has been little movement recorded by real estate investment trusts . A jump in cap rates implies falls in value, unless offset by rising rents.
Other towers being offered by Mirvac at 60 Margaret Street and by Dexus at 44 Market Street could take a hit as well, potentially changing hands at discounts of 15-20 per cent and 20-25 per cent, on Barrenjoey’s forecast.asset values that to date has yet to come,” Mr Brayshaw said.Notwithstanding an “extreme” flight to quality which has bolstered the performance of premium towers, rental incentives were elevated across the market – and a drag on new developments.
“This is important in the context of other real estate asset classes which fundamentally are in much stronger positions with higher levels of occupancy across the asset class as a whole and stronger cash flow profiles from lower incentives.”
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