Australia Commerical Real Estate

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Aug 6 2015 at 12:15 AM Updated 56 mins ago
Sydney office tenants surge but with an eye on the new supply

Sydney office vacancies are the lowest in Australia. Fiona Morris

by Robert Harley
Sydney's economic growth, and business expansion, has driven a surge in office take-up, and a drop in the office vacancy, not just in the CBD but in a number of metropolitan office precincts.

The question now is whether the surge in demand is strong enough to fill the new round of office completions - particularly Barangaroo - and the space the new tenants are leaving behind, without another weakening in rents and rise in incentives.

In the six months to July, the Sydney CBD vacancy rate dropped to 6.3 per cent, according to the Property Council. Its the lowest CBD rate in the country, and follows a high 60,000 sq m of space taken up, double the historic average.

Across the metropolitan area, the office vacancy rate fell in North Ryde, Chatswood and North Sydney. All three, along with Parramatta, now have some of the lowest vacancy rates in the country.


"Its looking very healthy," said Property Council chief executive Ken Morrison.

Leasing specialist positive

JLL's head of office leading in NSW, Daniel Kernaghan, said the strength of the residential market and investment in infrastructure was beginning to have a positive impact on NSW office leasing.

"Mid to large sized businesses are becoming aware that Sydney's development pipeline drops off sharply at the end of 2016 with very limited completions expected over 2017 and 2018," he said.

"As incentives move ahead of market conditions, we expect to see incentives trending below 25 per cent in 2016."

CBRE's head of research, Australia, Stephen McNabb, said Sydney would have a below average vacancy for the next two to three years, despite emerging supply and that would support some rent growth and a stabilisation in rent levels.

However CBRE's senior director, office services, Jenine Cranston, noted that while inquiry levels and demand remained at positive levels, there were close to 200 options for tenants needing 800 to 2500 sq m with little change to deal terms in the short term.

Geoffrey Learmonth, a director of national tenant representatives LPC Australia, warned that while the take-up was good news for today, the CBD's vacancy would rise again as the new developments came on stream and their tenants left space behind.

Mr Learmonth said tenants about to move into new buildings, including the NSW Government, Westpac, Ashurst and Ernst & Yong, were leaving behind 278,000 sq m of so far unleased space.

At the same time, 185,000 sq m is still to lease in the new towers, even though nearly 60 per cent of the space has been pre-committed.

Still a lot of space to be leased

On those numbers, the CBD will 462,000 sq m of space to absorb over the next five years - equal to over 230 larger floors - with the biggest shock, 171,000 sq m becoming available next year.

"The space will take over seven years to absorb at Sydney's long term take-up rate," Mr Learmonth said.

Kevin George, executive general manager, office and industrial, at the DEXUS Property Group, and one of the city's leading property owners, said that the figures did not account for an estimated 281,000 sq m of space that would be withdrawn from the market for reworking or conversion to apartments.

"Even with the stock coming in, we see the vacancy capping out around 10 per cent before it tracks down to 6-6.5 per cent in 2018," he said though he warned that incentives would stay "sticky".

"You typically seen three or four years of growth with the banks, the wealth management firms and the education sector taking more space."

Chief economist at BIS-Gelber Frank Gelber said the demand was just coming off the bottom. "It used to be a mountain of office space to fill, now it is a molehill" he said.

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Aug 10 2015 at 4:03 PM Updated Aug 10 2015 at 4:03 PM

Bunnings taps into investor appetite with $50m hopes for new warehouse

Bunnings Eastgardens is being sold by Wesfarmers. Supplied

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by Larry Schlesinger
Wesfarmers-owned Bunnings expects to reap a record $50 million from the sale-and-leaseback of a new DIY warehouse, which will soon commence construction in Sydney's eastern suburbs.

Bunnings, which last year spent around $700 million opening 26 new warehouses in Australian and NZ, is selling more of its new warehouses under sale-and-leaseback agreements, capitalising on surging investor appetite for well-leased commercial property that has driven up values and compressed yields.

The sales campaign for Bunnings Eastgardens, a 14,760 square metre warehouse development in Hillsdale, is expected to attract interest from local and offshore individuals as well as sovereign funds and institutional investors, according to exclusive selling agents Knight Frank.

A sub-6 per cent yield is tipped for the new warehouse, which will see Bunnings pay rental income of about $2.9 million over 12 years.

Last week, a new Bunnings in Swan Hill in regional Victoria sold at auction for $10.95 million to retired Adelaide doctor Prabhash Goel​ on a new record-low yield of 5.1 per cent. Dr Goel, who also bought the Bunnings in Ballina for $21.3 million in October last year on a 6.7 per cent yield, said a Wesfarmers lease was "one of the best around for commercial property".

Bunnings paid more than $18 million to acquire neighbouring properties and create the 2.3 hectare site on the corner of Denison and Smith Street close to the Westfield Eastgardens Shopping Centre. Construction is due to commence in the next few months with completion in early 2017.

Bunnings head of property, Andrew Marks said he expected a strong campaign given the "favourable market conditions".

"We are experiencing significant demand for Bunnings assets driven by the quality of our sites, the performance of our business and the strength of the Wesfarmers covenant. Bunnings Eastgardens has been a long anticipated site for our network and one of the best Bunnings assets to be taken to the market, " Mr Marks said.


"This will be a highly sought after investment. The catchment will experience very strong population growth with over 21,000 new dwellings expected to be completed by 2031," said Knight Frank director of retail sales Ben Stewart, who is marketing the property alongside colleagues Eugene Evgenikos, Dominic Ong and Richard Horne.

"The 2.293 hectare site in a diminishing industrial/commercial land supply market is perfect for investors seeking scale and there are potential stamp duty savings with the sale occurring before construction commencing," Mr Stewart added.

Aug 5 2015 at 6:04 PM Updated 12 mins ago

Bunnings buyer warns investors as $130m splashed out on commercial property

Prabhash Goel spent $10.95 million on the Swan Hill Bunnings. Pat Scala


by Larry Schlesinger
Retired Adelaide doctor Prabhash Goel paid $10.95 million for a Bunnings warehouse in Swan Hill in regional Victoria on a record low yield of 5.1 per cent as investors splurged on retail and commercial property, sending prices soaring and yields tumbling.

In total, investors splashed out $130 million on retail and commercial property over two days of frenzied bidding at packed Burgess Rawson portfolio auctions in Melbourne and Sydney.

Dr Goel, who also bought the Bunnings in Ballina last year for $21.3 million – both investments made on behalf of his family – said he was very happy with his investment despite the low yield which set a "new marker" for the asset class.

"Wesfarmers is one of the best leases around for commercial property. The yield is low, But If you look around, good long term leased property is being sold on low yields," he said.

Dr Goel, who also owns Wesfarmers shares, said he would buy more Bunnings property for his family, but warned other investors who snapped up childcare centres, bank branches and even a digital sign above Flinders Station, which sold for $3.05 million at the Melbourne and Sydney auctions, could be caught out if interest rates started to rise.

"We have got other cash businesses, so we can sustain any interest rate rise, but [we're] not sure that other investors can."

Dr Goel's acquisition was one of the standout results at the two portfolio auctions, where a 76 per cent clearance rate was achieved with properties backed by leases to Wesfarmers and Woolworths the most sought after.

YIELDS TO COMPRESS

Diversified industrial with interests including retail operations covering supermarkets, general merchandise and specialty departments stores, fuel and liquor outlets and home improvement and office supplies; coal mining; gas processing and distribution; insurance; chemicals and fertilisers; and industrial and safety product distribution.


Burgess Rawson director of valuations, Tim Perrin, said commercial yields would continue to compress and prices rise as long as interest rates remain low.

"The more conservative investors are being drawn out of cash and bonds, where returns are so low, and looking at some of the lease covenants backing these properties. They are seeing that the security they offer is almost as good as bonds, but at much higher yields, " Mr Perrin said.

He added that a striking feature of the market was the appetite for the major brands, principally Coles or Woolies. "It doesn't matter if it's a Dan Murphy's, a Bunnings or a supermarket."

Investors Tom and Karen Zafir, who missed out on a childcare centre, questioned some of the buyer behaviour, which included incremental bids in the hundreds of thousands of dollars.

"We are not working in a rational market," Mr Zafir said.

"Buyers don't appear to be doing their due diligence. We had the contracts for the childcare centre checked over by our lawyer, but other buyers are not doing that," said Ms Zafir,

Asked if they thought some of the buyer behaviour resembled punters at the pokies Mr Zafir said: "That's a pretty good analogy."

Also at the auction, a Bendigo office property leased to the state government on a 10-year lease sold for $7.31 million on a very low 4.4 per cent yield

"Somebody really wanted it," remarked one bemused punter.

The freehold digital advertising sign opposite Flinders station was bought by a Sydney investor who also owns a sign in North Sydney. A Brisbane investor bought the Dan Murphy's liquor store in Broadmeadows Melbourne.

"[A yield of] six has become the new five," said Burgess Rawson selling agent Shaun Venables.

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money
investing
Why ordinary Australians are investing in commercial property

Lowest prices are just the beginning for investors who are leaping into the commercial property market. Source: News Corp Australia

RETIRED Adelaide doctor and grandfather Prahbash Goel is a family man.
That’s why he paid $10.95 million for Bunnings warehouse in Swan Hill last week, bought to set up his two daughters and five granddaughters for life.
He is one of a large number of mum-and-dad investors turning to the commercial property market, snapping up everything from pubs and bottle shops to childcare centres and even digital billboards.
“A lot of these properties in the $10 million range are being bought up by small people,” Dr Goel told news.com.au
“It is very risky, but a lot of people are getting into it.”
Unlike with residential property, the benefit of being commercial landlord is that tenants are often the one who must pay rates, land tax and insurance.
And while commercial properties tend not to dramatically increase in value the way houses do, low management input and overheads mean that net rental yields are higher.
An old hand at commercial property sales, Dr Goel said the Bunnings purchase had been “very highly contested” at the Burgess Rawson portfolio auction in Melbourne.
The reason for its appeal, he said, was a combination of reputable brand, strong business model, a 12-year lease and the relative ease of managing a passive investment with low overheads.
“Bunnings is a good, stable business,” he said, putting great store in the fortunes of a company that services Australia’s national pastime of home improvement.
“I find that it is a good investment. We used to have a hardware store around the block; not anymore. You want to buy a packet of nails? You go to Bunnings.”
Dr Prahbash Goel has bought two Bunnings stores for his daughters and granddaughters.
Dr Prahbash Goel has bought two Bunnings stores for his daughters and granddaughters. Source: NewsComAu
The tenant will pay Dr Goel’s family $558,450 a year in rent, a yield of 5.1 per cent, which although historically low is significantly higher than residential rents.
“I’ve got residential properties and the yield is 3-3.5 per cent after rates, tax etc,” Dr Goel said.
“And then you pay capital gains when you sell them.”
It is not the first time the retired doctor and aged care entrepreneur has splashed out on a hardware superstore.
Dr Goel paid $21.3 million for a Bunnings in Ballina last year, also for his family.
“I might be buying more,” he said.
But for those who want to dabble in the sector, factor in the possibility that interest rates will rise, cutting into rental yield.
Burgess Dawson director of valuers Tim Perrin said poor returns on cash and bonds made commercial property extremely appealing to mum-and-dad investors in today’s economic climate.
“There are a lot of private investors in the market looking at commercial property, and
that’s being encouraged in part by self-managed superannuation,” he said.
“People are buying them for long term security, so ‘it’s in my super fund and I know every year it will pay me $400,000’.”
Whereas locking up cash in a 10-year bond account once yield 16 per cent interest, these days it’s below three per cent.
And with housing prices at record highs, “you can’t get a five per cent rental yield on residential”.
This Melbourne billboard’s new owner is raking in $357,000 in rent after paying $3.05 mil
This Melbourne billboard’s new owner is raking in $357,000 in rent after paying $3.05 million for it. Source: NewsComAu
“We sell commercial properties from the low $100,000 range to the tens of millions of dollars. There are an amazing number of investors with that kind of money.”
From corner shops to convenience stores, supermarkets, bottle shops, hotels, childcare centres and cafes, the possibilities are endless.
But commercial properties can be a risky investment, so do your research to establish the viability of the tenanted business.
The biggest risk is losing a tenant, because it can take months or more than a year to find a new one.
And commercial properties do not quickly double in value the way houses do; they are purchased for cashflow, not capital gains.
Properties with long-term leases to major retailers like Coles, Woolworths, Bunnings and Dan Murphy’s were highly sought after, Mr Perrin said, and investors should expect to pay at least $4 million for one of these prime assets.
On the riskier side of the equation, unusual properties — like a digital billboard overlooking Melbourne’s Flinders St, which sold for $3.05 million to a private investor in Melbourne — could pay off big for those willing to gamble.
Mr Perrin said the sale price for the billboard “was always going to be an interesting question — we hadn’t sold a sign before.”
With a whopping 11.7 per cent rental yield, the sign’s new owner will rake in $357,000 a year from their new tenant, a major advertising company, no further effort required.

Aug 10 2015 at 4:03 PM Updated Aug 10 2015 at 4:03 PM

Bunnings taps into investor appetite with $50m hopes for new warehouse

Bunnings Eastgardens is being sold by Wesfarmers. Supplied

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by Larry Schlesinger
Wesfarmers-owned Bunnings expects to reap a record $50 million from the sale-and-leaseback of a new DIY warehouse, which will soon commence construction in Sydney's eastern suburbs.

Bunnings, which last year spent around $700 million opening 26 new warehouses in Australian and NZ, is selling more of its new warehouses under sale-and-leaseback agreements, capitalising on surging investor appetite for well-leased commercial property that has driven up values and compressed yields.

The sales campaign for Bunnings Eastgardens, a 14,760 square metre warehouse development in Hillsdale, is expected to attract interest from local and offshore individuals as well as sovereign funds and institutional investors, according to exclusive selling agents Knight Frank.

A sub-6 per cent yield is tipped for the new warehouse, which will see Bunnings pay rental income of about $2.9 million over 12 years.

Last week, a new Bunnings in Swan Hill in regional Victoria sold at auction for $10.95 million to retired Adelaide doctor Prabhash Goel​ on a new record-low yield of 5.1 per cent. Dr Goel, who also bought the Bunnings in Ballina for $21.3 million in October last year on a 6.7 per cent yield, said a Wesfarmers lease was "one of the best around for commercial property".

Bunnings paid more than $18 million to acquire neighbouring properties and create the 2.3 hectare site on the corner of Denison and Smith Street close to the Westfield Eastgardens Shopping Centre. Construction is due to commence in the next few months with completion in early 2017.

Bunnings head of property, Andrew Marks said he expected a strong campaign given the "favourable market conditions".

"We are experiencing significant demand for Bunnings assets driven by the quality of our sites, the performance of our business and the strength of the Wesfarmers covenant. Bunnings Eastgardens has been a long anticipated site for our network and one of the best Bunnings assets to be taken to the market, " Mr Marks said.


"This will be a highly sought after investment. The catchment will experience very strong population growth with over 21,000 new dwellings expected to be completed by 2031," said Knight Frank director of retail sales Ben Stewart, who is marketing the property alongside colleagues Eugene Evgenikos, Dominic Ong and Richard Horne.

"The 2.293 hectare site in a diminishing industrial/commercial land supply market is perfect for investors seeking scale and there are potential stamp duty savings with the sale occurring before construction commencing," Mr Stewart added.

Aug 5 2015 at 6:04 PM Updated 12 mins ago

Bunnings buyer warns investors as $130m splashed out on commercial property

Prabhash Goel spent $10.95 million on the Swan Hill Bunnings. Pat Scala


by Larry Schlesinger
Retired Adelaide doctor Prabhash Goel paid $10.95 million for a Bunnings warehouse in Swan Hill in regional Victoria on a record low yield of 5.1 per cent as investors splurged on retail and commercial property, sending prices soaring and yields tumbling.

In total, investors splashed out $130 million on retail and commercial property over two days of frenzied bidding at packed Burgess Rawson portfolio auctions in Melbourne and Sydney.

Dr Goel, who also bought the Bunnings in Ballina last year for $21.3 million – both investments made on behalf of his family – said he was very happy with his investment despite the low yield which set a "new marker" for the asset class.

"Wesfarmers is one of the best leases around for commercial property. The yield is low, But If you look around, good long term leased property is being sold on low yields," he said.

Dr Goel, who also owns Wesfarmers shares, said he would buy more Bunnings property for his family, but warned other investors who snapped up childcare centres, bank branches and even a digital sign above Flinders Station, which sold for $3.05 million at the Melbourne and Sydney auctions, could be caught out if interest rates started to rise.

"We have got other cash businesses, so we can sustain any interest rate rise, but [we're] not sure that other investors can."

Dr Goel's acquisition was one of the standout results at the two portfolio auctions, where a 76 per cent clearance rate was achieved with properties backed by leases to Wesfarmers and Woolworths the most sought after.

YIELDS TO COMPRESS

Diversified industrial with interests including retail operations covering supermarkets, general merchandise and specialty departments stores, fuel and liquor outlets and home improvement and office supplies; coal mining; gas processing and distribution; insurance; chemicals and fertilisers; and industrial and safety product distribution.


Burgess Rawson director of valuations, Tim Perrin, said commercial yields would continue to compress and prices rise as long as interest rates remain low.

"The more conservative investors are being drawn out of cash and bonds, where returns are so low, and looking at some of the lease covenants backing these properties. They are seeing that the security they offer is almost as good as bonds, but at much higher yields, " Mr Perrin said.

He added that a striking feature of the market was the appetite for the major brands, principally Coles or Woolies. "It doesn't matter if it's a Dan Murphy's, a Bunnings or a supermarket."

Investors Tom and Karen Zafir, who missed out on a childcare centre, questioned some of the buyer behaviour, which included incremental bids in the hundreds of thousands of dollars.

"We are not working in a rational market," Mr Zafir said.

"Buyers don't appear to be doing their due diligence. We had the contracts for the childcare centre checked over by our lawyer, but other buyers are not doing that," said Ms Zafir,

Asked if they thought some of the buyer behaviour resembled punters at the pokies Mr Zafir said: "That's a pretty good analogy."

Also at the auction, a Bendigo office property leased to the state government on a 10-year lease sold for $7.31 million on a very low 4.4 per cent yield

"Somebody really wanted it," remarked one bemused punter.

The freehold digital advertising sign opposite Flinders station was bought by a Sydney investor who also owns a sign in North Sydney. A Brisbane investor bought the Dan Murphy's liquor store in Broadmeadows Melbourne.

"[A yield of] six has become the new five," said Burgess Rawson selling agent Shaun Venables.

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Dexus Property Group bullish on office tower outlook
THE AUSTRALIAN AUGUST 13, 2015 12:00AM

Kylar Loussikian

Journalist
Sydney
Turi Condon

Property Editor
Sydney

Dexus Property Group, one of the nation’s biggest office tower landlords, expects offshore investment will continue to drive up commercial property values, after yesterday posting a 52.2 per cent boost in net profit to $618.7 million last ­financial year.

The $7.4 billion group, which a year ago won the takeover battle for the $4bn Commonwealth Property Office Fund and which has emerged as an underbidder for Investa Property Group, would benefit from the hot market, chief executive Darren Steinberg said.

“There was no downside for Dexus partaking in (the Investa) transaction. We had a large capital partner and only a small sliver of the equity,” Mr Steinberg said.

“So whether we were successful or not we knew the demand for these kinds of assets would lead to significant valuation uplift for the Australian office market, in particular Sydney and Melbourne.”

Dexus, which manages a portfolio valued at more than $19bn, reported funds from operations of $544.9m, up 21.9 per cent, for the 12 months ending in June.

Mr Steinberg said that, despite office supply widening as Lend Lease’s Barangaroo development enters the Sydney market, a tightening in the medium term would benefit Dexus.

A substantial portion — $4.8bn — of the $9.5bn of the fund’s office towers are in Sydney.

“You’ve seen a clear drop of incentives throughout our book. We’re doing a large number of deals without incentives which is helping bring that number down. Excluding those deals the incentives are in the low 20 per cent range, so that’s come down,” Mr Steinberg said.

“What we’ll see is that incentives will stay around that level for the next 12 months before reducing in 2017 and 2018 as the market tightens.

“What is pleasing about the Sydney CBD now is we know Barangaroo is coming on in the next 12 months and there’s still a bit of ­vacancy there, but after that there is a lack of new supply coming to the market.”

Dexus has an occupancy of 95.3 per cent in its office portfolio, up from 94.6 per cent at the end of June last year, with incentives falling from an average of 18.6 per cent to 15 per cent.

The fund recorded a trading profit of $42.6m from office property repositionings, identifying a number of other assets to grow its trading pipeline, including 32 Flinders Street in Melbourne’s CBD and part of its Lakes Business Park in Sydney.

Dexus will pay a distribution of 41.04c a security, up from 37.56c in the 2014 financial year.

Funds from operations and distribution per security were forecast to increase by between 5.5 per cent and 6 per cent for the current financial year.

Macquarie analysts said the result was in line with expectations, although the 2016 guidance was ahead of forecasts. “With flat like for like income growth expected and contributions from the management business and trading profits directly in line with our forecasts, the better than expected earnings outlook results from a lower than expected cost of debt and we expect a slightly higher add back of amortisation,” analyst Paul Checchin wrote.

Shares in Dexus closed down 5c at $7.54.

[greengiraffe]

Aug 17 2015 at 3:49 PM Updated Aug 17 2015 at 6:51 PM

Melbourne and Sydney prime industrial to fall below seven per cent

The Goodman Brickworks refrigerated logistics facility sold to MapleTree for $253m on a 5.6 per cent yield


by Larry Schlesinger

The flood of local and offshore money into prime-grade industrial property in Sydney and Melbourne will continue to push up prices and drive down yields below 7 per cent, according to a new report by LJ Hooker.

The demand is being fuelled by the big institutions seeking to deploy capital into higher yielding assets amid low interest rates and low global bond rates, combined with the broader economic shift in Australia away from manufacturing to imported goods and e-retail, requiring modern distribution and logistics facilities.

At the same time, asking rents have hardly budged, with incentives rising to encourage tenants to pre-commit to new facilities.

Over the 12 months to June 2015, industrial sales rose 56 per cent to $5.3 billion, helped by Singapore giant Frasers Centrepoint's takeover of Australand $1.2 billion industrial portfolio. Excluding this deal, industrial transactions were still up a healthy 15 per cent year-on-year, according to LJ Hooker.


Over this period, prime industrial yields in Sydney firmed by 57 basis points to 7.2 per cent while in Melbourne they dropped 50 basis points, also to 7.2 per cent.

DEMAND CONSTRICTS YIELD

"Yields have tightened under the weight of demand," said LJ Hooker commercial research manager, Mathew Tiller.

LJ Hooker forecast prime Sydney industrial yields to firm by another 34 basis points with property prices to rise about nine per cent. In Melbourne, prime yields are forecast to fall another 20 basis points over the next 12 months with capital values to rise by between six and 11 per cent.

Mr Tiller highlighted Singaporean group Mapletree's $253 million purchase of Goodman and Brickworks' Coles chilled distribution centre at Eastern Creek on a passing yield of just 5.6 per cent – a figure more commonly seen in the office market – as an example of the type of transactions being fuelled by the shift from manufacturing to distribution.

More recently, Singapore property giant Ascendas lobbed a $1.1 billion preferred bid to buy one of the country's largest portfolios of logistics real estate from the Singapore government's GIC on a yield of about six per cent.

"Irrespective of current leasing conditions or wider economic influences, industrial property has increased in popularity, with buyers showing interest across the spectrum of property sizes," said LJ Hooker head of real estate, Christopher Mourd​.

LJ Hooker also found that prime yields tightened by 40 basis points in Brisbane and by 25 basis points in Perth.

In August, Goodman Group, Australia's biggest developer and owner of industrial property, reported that yields had tightened from 7.5 per cent in 2014 to seven per cent in 2015 as part of its full-year results.

[greengiraffe]

• Aug 20 2015 at 9:59 AM 
   
  
  
•  Updated Aug 20 2015 at 9:59 AM 
  

Investa Office Fund stung by tough Brisbane Perth office leasing markets

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[img=620x0]http://www.afr.com/content/dam/images/1/3/k/i/q/8/image.related.afrArticleLead.620x350.gj3b90.png/1440028799672.jpg[/img]We've delivered growth ahead of expectations: Investa IOF Fund Manager Ming Long. Michele Mossop
[Image: 1426114375736.png]

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by Matthew Cranston
Dire Perth and Brisbane leasing markets have hurt the performance of the Investa Office Fund which has reported a 2.4 per cent decline in net profit to $179.2 million.
While the Fund leased about 55,000 square metres of office space in 124 deals, management said like-for-like net property income fell1.3 per cent due to vacancy in Brisbane.
"Although Brisbane and Perth assets make up only 19 per cent of the Group's portfolio by value, the challenging leasing conditions that persist in those markets have impacted the performance of the portfolio," the fund's management said in a statement.
"The markets in Brisbane and Perth remain challenging, with no material improvement evident over the past 6 months."

In delivering the fund's financial results, IOF fund manager Ming Long focused on the growth in funds from operations (FFO) and rising valuations.
"We've delivered FFO growth ahead of expectations, and the 8.1 per cent growth in net tangible assets over the period reflects the quality of the IOF portfolio, and demand for assets with de-risked income streams," she said.
The fund has posted a $126 million increase in the value of its office properties, lifting net tangible assets per security to $3.62 from $3.35.
The major jumps in values were for 800 Toorak Road, Melbourne which was up 13 per cent; 111 Pacific Highway, North Sydney up 11 per cent; 105 Miller Street, North Sydney up 10 per cent; and 6 O'Connell Street, Sydney up 8 per cent.




Fund revenue was up 12.1 per ent to $217.5 million.
Management  said a strategic review  was being undertaken in regards to IOF's position within the Morgan Stanley Sale Process of the Investa office business. Management said the strategic review would consider all available options, including the ongoing management and ownership of IOF.
Developer Mirvac is regarded as the front runner to take over the fund management platform from the existing managers. 
"The catalyst for the strategic review has been confirmation that IOF no longer has a strategic opportunity to acquire 100 per cent of the Investa Office Management platform."

IOF is has forecast funds from operations for fiscal 2016 to be 28.1 cents per unit, a 1.4 increase on financial year 2015.

[greengiraffe]

• Aug 23 2015 at 1:43 PM 
   
  
  
•  Updated Aug 23 2015 at 9:01 PM 
  

Global appetite for Sydney commercial property surges

[img=620x0]http://www.afr.com/content/dam/images/g/j/3/m/5/z/image.related.afrArticleLead.620x350.gj4rvr.png/1440327713912.jpg[/img]Sydney attracted $11.2 billion of real estate investment in the year to June, up 16 per cent on the prior 12 months. Ryan Stuart
[Image: 1426319989079.png]

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by Larry Schlesinger
The surge of money into Sydney offices, malls and logistics facilities is only going to get bigger, according to investment advisers and fund managers, after a new report ranked Australia's biggest city the 10th most-traded commercial real estate investment market in the world.
Sydney attracted $US8.2 billion ($11.2 billion) of real estate investment in the year to June, up 16 per cent on the prior 12 months, according to global real estate services group DTZ.
Sydney was the second-most-traded real estate market in the Asia Pacific, behind Tokyo, attracting more commercial investment than Hong Kong and Singapore.
"The results confirm the importance of Sydney as a major investment destination, not only in Asia Pacific but also globally," said DTZ's CEO for Australia and NZ, James Patterson.
[img=620x0]http://www.afr.com/content/dam/images/g/j/5/q/g/z/image.imgtype.afrArticleInline.620x0.png/1440307790513.png[/img]
According to DTZ, low interest rates drove global investment into commercial property up 15 per cent over the first six months of the year to reach $US318 billion ($435 billion) led by Europe and North America ,with London and Manhattan the most-traded cities globally.
In Asia Pacific that volume of transactions dipped in the year, but not in Sydney, where activity surged, helped along by deals like Dalian Wanda's acquisition of Gold Fields House near Circular Quay in January for $415 million.
More recently, Chinese sovereign wealth fund the China Investment Corporation (CIC)bought four iconic Sydney office towers, including Deutsche Bank Place, as part of its $2.45 billion acquisition of the Investa Property Group in a deal expected to drive up prime CBD office values across the board.
According to Perpetual Trustee's head of corporate client services, Andrew Cannane, when you look at those offshore institutions and sovereign funds that have not yet invested into Australia, the potential for growth is massive.


"By my estimates, only nine of the top 30 global sovereign wealth and pension funds by equity invested in real estate have invested in Australia so far. 
"And only nine of the top 50 real estate investment managers (by equity raised since 2009) have invested into Australian real estate," said Mr Cannane, referencing data compiled by global investment publication PERE.
Mr Cannane said Sydney was viewed as gateway city for Australia.
"For those investors making their first acquisition in Australia, it has the appeal of New York in the US or London in the UK. It's the financial capital and the biggest city," he said.

AMP Capital Investors real estate fund manager, John Dynon, said Sydney was definitely "punching above its weight".
"It has a strong core property offering which is very important, the highest yields of any mature market in the world, and the office vacancy rate is at  7 per cent, the point where you start to see rental growth."
"If you're looking to buy office property in New York, they yield is 3.5 per cent or below. In Sydney, you're talking about a  6 per cent yield. London is even more expensive than New York.
Mr Dynon said the recent depreciation of the Australian dollar had only added to offshore investor appetite. "There's a lot more appetite to take on the currency hedging risk, plus assets look so much cheaper."

[greengiraffe]

• Aug 28 2015 at 8:31 AM 
   
  
  
•  Updated Aug 28 2015 at 6:21 PM 
  

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Global property demand keeps A-REITS attractive to investors

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/3/m/5/z/image.related.afrArticleLead.620x350.gj60qn.png/1440750135329.jpg[/img]Strong demand for quality commercial premises adds to the lure of A-REITs. Ryan Stuart
[Image: 1426319989079.png]

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by Larry Schlesinger
A-REITs are still delivering strong returns for retail investors seeking exposure to high-yielding real estate, with the sector benefiting from global demand for commercial property and improving leasing conditions.
AFR Weekend analysis of the annual results this reporting season of the trusts on the S&P/ASX 200 A-REIT index shows a strong, broad-based lift in profitability, and increased distribution payouts to shareholders. Most forecast rising earnings and bigger distribution payouts in 2016.
Patient investors have been rewarded with annual total returns averaging well into in the double digits over the past three years. Some, such as Bunnings owner BWP Trust, the diversified Growthpoint Properties group and mall owner Westfield Corp, have exceeded 20 per cent.
"Overall, A-REIT reporting has been strong, with pretty much everyone meeting or exceeding guidance," says Stuart Cartledge, managing director of Phoenix ­Portfolios, which manages two funds that invest in listed property securities.
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Cartledge says the key themes to emerge this reporting season were a big rise in net tangible assets, driven by income growth and a bigger contribution from cap rate compression – even among office assets, where leasing conditions are tougher – and a strong lift in specialty sales turnover at better-quality shopping centres.
"Given that speciality tenants pay most of the rent in the big shopping centres, their health is paramount to the outlook for rental growth in this space," he says.
James Maydew, deputy head of global listed real estate at AMP Capital Investors, says the latest results highlight that A-REITS remain a good long-term, risk-adverse asset class and one that should still appeal to mum and dad investors who want exposure to real estate and its rental income.
"A-REITS still look attractive when you compare them with the broader equities market and results from the recent reporting season have been strong," Maydew says, pointing out that while the Australian equity market has fallen 14 per cent since peaking on April 27, A-REITS have fallen only about 5.8 per cent.




"It shows the defensiveness of the asset class," he says.
"There is huge demand for good quality real estate around the world. The top 20 sovereign wealth funds are all lifting their allocations to real estate, some through direct investment, but also through listed property."
THREE-YEAR COMMITMENT
Maydew says A-REITs are also now far better placed to cope with any increased market volatility than they were following the global financial crisis, when values and returns plummeted.

"Leverage is the biggest change. Most A-REITs generally have a lower form of leverage. They have also diversified their debt sources, having been heavily dependent on the big four banks during the GFC. This became a big negative for them when the banks became unwilling to increase their exposure to real estate."
Another change, Maydew says, is the retracement of the trusts' exposure to offshore markets – a move they made before the GFC to boost earnings. Except for a small number of A-REITs, such as Goodman Group and Westfield, which he says have the capability to operate offshore, all the A-REITs have sold out of their overseas positions.
But he cautions that retail investors should have at least a three-year investment timeline for A-REITs, to get the benefits that come with owning real estate, "otherwise they behave like equities". 
He also says some of the emerging asset classes, such as childcare centres, self-storage and healthcare trusts, which have performed well to date but suffered more heavy share prices falls this week than other A-REITS as equities fell, require greater scrutiny. "Trusts that have exposure to the residential market are also riskier," he says.

Atchison Consultants managing director Ken Atchison says A-REITS look attractive on a yield play, with their spread to 10-year government bond rates high and widening.
Across the S&P/ASX 200 A-REIT index, yields average 5.7 per cent, with some trusts exceeding 6 and 7 per cent, compared with 10-year Australian government bonds at 2.65 per cent and US bonds at 2.15 per cent.
"Dividend yields have not followed bond yields down, the margin has been widening," Atchison says. "Bond rates would have to rise quite a lot to make it discouraging to invest in A-REITs."
While a recent report by Aberdeen Asset Management said current asset pricing was unsustainable and the commercial property market – especially office property – faced a looming price correction, the consensus appears to be that the bull market has further to run locally.
"We're only halfway through the real estate cycle in Australia," Maydew says. "We're not at the same point as London, Tokyo or New York."

[greengiraffe]

• Aug 31 2015 at 5:54 PM 
   
  
  
•  Updated Aug 31 2015 at 5:54 PM 
  

Global office yields tighten, but Sydney still offering premium return

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/0/z/7/v/image.related.afrArticleLead.620x350.gjbkhc.png/1441007641601.jpg[/img]Sydney's Chifley Tower: Overseas interest has never been stronger. Dominic Lorrimer
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by Larry Schlesinger
On a pure yield basis, Sydney's A-grade office market is the most attractive in the world, according to a new global report by Savills Australia.
Savills World Office Yield Spectrum report found that global office yields tightened on average by 20 basis points in the six months to July as the world's biggest financial institutions increased their allocations to global commercial real estate.
Report author Tony Crabb, head of research at Savills Australia, said the lower cost of capital was currently driving down yields, rather than expectations of future rental income growth.
"There is still a weight of money seeking high-yielding commercial property. Overseas interest has never been stronger, not just in sheer numbers but in the number of interested parties," he said.

Over the six months to July, Sydney yields tightened by about 12 basis points to a 6.5 per cent net average return, more than 160  basis points higher than its nearest rival, Shanghai, and more than 330 basis points higher than London, the world's hottest commercial property market.
Once incentives are factored in – Australia has some of the highest office incentives in the world – the Sydney office market does not look quite as attractive, returning just over 4 per cent, but according to Mr Crabb, the net yield is the key figure for investors.
"Incentives have already been paid out by the previous owners; new investors are getting whatever the cash flow is," he said.
In Melbourne, yields tightened by 21 basis points to 6.68 per cent, while in the weaker Perth, Brisbane and Adelaide markets, yields were unchanged.


Further yield compression is expected over the next six months as market-changing deals like China Investment Corporation's $2.45 billion acquisition of the Investa Property Group on a blended yield of 5.7 per cent drive up values across the board.
"These impacts should come through in December valuations. A large chunk of the listed property sector is already trading at a premium to NTA so it looks like market has factored in the growth already," Mr Crabb said.
According to Savills, tenant demand for office space is gathering momentum in both Melbourne and Sydney, where substantial growth in net absorption is being delivered.
A further factor supporting appetite, Mr Crabb said, was the weaker Australian dollar.

But, he said the problem for global institutions was the lack of suitable assets of size and scale. "About $100 billion in property has changed hands over the past four years. How much more is there left to change hands?"

[greengiraffe]

• Sep 3 2015 at 12:15 AM 
   
  
  
•  Updated Sep 3 2015 at 12:15 AM 
  

REITs office leasing pain a two-tiered story

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NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/j/d/s/l/p/image.related.afrArticleLead.620x350.gjd7bq.png/1441184915367.jpg[/img]Charter Hall has had to accept train operator Aurizon announcing it would vacate 175 Eagle Street, leaving about 10,000 square metres empty. Tony Phillips
[Image: 1426114375736.png]

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by Matthew Cranston
Australia's two-tiered office leasing markets have exposed clear differences in the performance of real estate investment trusts' latest financial results.
With dire Brisbane and Perth office markets recording all-time-high vacancy rates, any trust with over-exposure to such markets has had softer net property income growth on a like-for-like basis. At the same time trusts that have an over-exposure to the improving Sydney and Melbourne markets recorded much stronger growth in the same measure. 
Investa Office Fund, which has a relatively high weighting to Brisbane – about 19 per cent of its portfolio – had  negative 1.3 per cent net income growth. With large tracts of empty space, including Investa's 140 Creek Street building, there are   10,800 square metres of space empty.
"Although Brisbane and Perth assets make up only 19 per cent of the group's portfolio by value, the challenging leasing conditions that persist in those markets have impacted the performance of the portfolio," Investa Office Fund's manager Ming Long said.

Other large  trusts that have relatively high weightings to Brisbane include DEXUS Property Group, which earlier in 2015 bought Waterfront Place in the city centre for $635 million. 
DEXUS' like-for-like net income growth was flat at just 0.2 per cent.
On the other side of the equation, trusts such as Mirvac Group and GPT Group shone  in this reporting season because of their overweighting to Sydney and Melbourne.
GPT Group had like-for-like growth of 8.1 per cent, driven by a huge push in office leasing. Mirvac achieved like-for-like net operating income growth of 2.6 per cent. 

CLSA analyst Michael Scott said the exposure to the Brisbane and Perth markets had a definite bearing on income growth. However, he also said further improvement in the Sydney and Melbourne markets was required to make sure costly incentives stablised.
"The office markets are still challenging, but the bright spot is the strong net absorption in Sydney and Melbourne, particularly from the IT sector. In Sydney incentives are still very high. We need to see continued strong net absorption before incentives start to materially fall," Mr Scott said. 
Charter Hall Group, which has no direct property investments but instead invests in several funds that own office towers, does not give a clear sight on income growth in each of its funds.
Some of the funds have significant exposure to Brisbane, where recently it has had to accept train operator Aurizon announcing it would vacate 175 Eagle Street, leaving about 10,000 square metres empty for Charter Hall to lease again.

Overall, across Charter Hall's office funds, like-for-like office income increased about 3 per cent.