This article is from the Australian Property Journal archive
OFFICE revaluations are continuing to wash out through the sector, but the magnitude of losses is shrinking – with Australia’s biggest owner of white collar workplaces Dexus taking a relatively modest 3.2% haircut in property values over the past six months.
Office values have been smashed as working from home and flexible working during and since the pandemic emptied offices and forced a re-think from tenants on how much floorspace they required.
Dexus has seen hefty writedowns of its office tower values in recent years – most recently, downwards revaluations drove it to a massive $1.58 billion statutory loss for FY24 – while it has been selling major assets at discounts of more than 30% to peak values.
Yesterday it announced 172 of its 176 assets, comprising 29 office buildings and 143 industrial properties, had been externally valued, resulting in a $267.6 million decrease, or 2.1% decrease on book values across the portfolio.
Its office portfolio decreased circa 3.2% driven by higher capitalisation rates and discount rates, partially offset by market rental growth, Dexus said. That compared to the 1.4% gain in the industrial portfolio, which saw rental growth largely offset higher capitalisation rates and discount rates.
“Positively, the rate of decline in office valuations has slowed in the six month period, with improving transaction volumes and an increase in interest from institutional buyers,” Ross Du Vernet, Dexus group CEO and managing director said.
The weighted average capitalisation rate (WACR) of the stabilised office portfolio expanded by 12 basis points to 6.17% over the six months. Its industrial portfolio WACR rate expanded by 9 basis points to 5.54%.
Dexus has been seeking to offload some $2 billion of office assets and diversify its portfolio. This month it reportedly made a bid for the Australian student accommodation portfolio of Campus Living Villages.
It is set to offload its 100 Mount Street tower in North Sydney, which is owned together with its flagship wholesale fund, for $600 million to US group Hines. The deal is closing some 18 months after the 2019-completed tower was tipped to the market, with reported hopes of $800 million.
Major tenant NBN had leased nearly half the tower when it was under construction, although has subleased some of that space to Hollard Insurance, and is likely to head for the exit and move to a new building being developed by Lendlease above the new Victoria Cross metro station nearby.
In recent weeks, Dexus also confirmed $443 million in divestments across the Pyrmont headquarters of Domain and the 145 Ann Street tower in Brisbane. Those deals were struck a discounts to peak values at 35% and more than 20% respectively.
Dexus has also recently sold 5 Martin Place in Sydney for $296.2 million, reflecting a discount of over 30% from peak value, as well as 130 George Street, Parramatta and 18 Motorway Circuit, Ormeau, also below peak value.
In a sign that valuations are now aligning with market expectations, more than $1.5 billion worth of offices are changing hands. The pricing gap expectation between buyers and sellers in Sydney, for instance has reduced significantly – from 21.6% at the end of 2023 to 6.7%, according to MSCI.
