© Reuters. FILE PHOTO: A sign for an estate agent outside a house shown to have been recently sold in Sydney on October 13, 2014. REUTERS/David Gray/FilePhoto
Written by Louis Jackson
SYDNEY (Reuters) – Australia’s top landlords and developers played down concerns about inflated commercial property valuations at a conference on Tuesday, while acknowledging that economic uncertainty is making investors and renters more cautious.
Commercial real estate prices are a major concern for investors globally as public markets appreciate the impact of a slowing economy and the growth of remote work, while landlords, especially unlisted players, resist major changes.
At the Macquarie Australia conference on Friday, the country’s largest office owner, Dexus, said market pricing implying a 20% to 25% downgrade of asset rating was overstated. Chief investment officer Ross de Vernet said distinct buildings along with signage that workers will return to offices should help protect the portfolio.
“It doesn’t really make sense,” du Vernet said at the Macquarie Australia conference in Sydney.
Dexus has two locations in Sydney’s CBD on the auction block, widely seen as groundbreaking deals for how bad the valuation crunch is. Du Vernet refused to provide a price guide.
Public investors have shunned Australian REITs, and the benchmark A-REIT is still down 21% from its late 2021 peak despite a rally last month.
High-quality assets as a bulwark against deep writedowns have been a topic for Russell Pruitt, chief financial officer at Charter Hall, which manages A$88 billion and splits the bulk of its property portfolio between office and industrial properties.
“We believe our valuations should not be impenetrable, but relatively stable compared to some of the more significant volatility that we think they will see,” Pruett said.
Although the data shows that occupancy rates remain high, questions from the crowded public have wondered how much floor space clients will require when entering contracts for renovations.
Du Vernet said that question was making it difficult to secure large leases in previous years.
“There’s still a lot of uncertainty as companies kind of struggle with their requirements… I think it’s going to be different than before COVID, customers are going to be more cautious,” he said.
Pruett said there were no “significant discounts” at Charter Hall.