The global shortage of investment property will drive new “beachhead pricing” with yields continuing to sharpen during the next 12 months, according to Centuria chief executive of listed property Nick Collishaw.
“There is no indicator that would suggest office and industrial property values will slow,” Mr Collishaw told The Australian.
The retail property sector, however, was more challenging because of the headwinds facing tenants, he said.
Yields for CBD investment buildings could tighten another 25 basis points while suburban office yields could sharpen 50 to 75 basis points, he added.
“There is still a global shortage of investments so we could continue to see new beachhead pricing,” Mr Collishaw said. He pointed to Sydney’s Exchange Centre, which sold last month for $340 million on a yield of about 4.6 per cent in a deal that has reset CBD office tower values.
“There are still massive wholesale mandates that have not been satisfied such as Blackstone and Morgan Stanley,” Mr Collishaw said.
Interest rates would have to rise by 0.25-0.5 per cent to change the behaviour of major investors, he said.
Rental increases of about 3 per cent a year built into office leases were seen by investors as offsetting the threat of rising interest rates, Mr Collishaw said.
Centuria was focused on trying to capture the flood of retail money seeking yield.
“Interest on deposits has decimated retirement incomes. You can’t live on 1.8 per cent per annum from bank interest, which is pushing investors into real estate.” The result has been a strong demand for property syndicates underpinned by long leases.
Centuria has launched a $76m raising for a single asset trust holding a Brisbane office building leased to energy retailer Energex.
“We expect it to be oversubscribed on the back of our Scarborough fund (which holds a Canberra office building), where we were raising $46m and had $140m in subscriptions.
“Normally it would take six weeks to raise that $140m and it came in under 10 days.” Both buildings had government tenants and both had leases of more than eight years, he said. Mr Collishaw predicted more of these properties would be snapped up by offshore groups, which had a lower cost of capital.
Centuria, which has $1.55 billion of listed property funds and $1.3bn of unlisted property funds under management, expected to make another acquisition before the end of the calender year, he said.The group also was “bedding down” the merger between two listed trusts, its Metropolitan REIT and Urban REIT.