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and entering Centuria New Zealand.
The second quarter economic news was dominated by volatile share markets and falling interest rates. It was reported that blue chip shares as represented by ASX 100 had risen less than 1% over the past 10 years. The Reserve Bank also lowered Australian interest rates further with the official cash rate now 1.75%. More recently, we have seen big swings in global equity markets as a result of Britain voting to leave the European Union.
Whilst talking with investors, financial planners and research analysts about the unpredictable nature of these asset classes it reminds us of why we have direct property as a substantial part of our investment portfolios. Diversification by asset class delivers real benefits in lowering the volatility of an overall portfolio. Whilst investors have been investing more and more in direct property for the higher level of tax effective income, we are starting to see strong signs that conditions are moving in favour of landlords in the stronger performing economies of NSW and Victoria. Increasing tenant demand and falling supply in some regions are driving fundamental property measures such as falling vacancy rates, decreasing incentives and high rents per square metre. All of this is forecast to flow through to real property growth over the next five years.
In Sydney, the central business district rental market is now very tight and landlords are in a very strong position when negotiating new tenant leases. We are seeing this flow through to suburban markets such as the North Shore markets of North Sydney, St Leonards and Chatswood. Parramatta and the inner west are also performing well.
On the 30th of May Centuria opened the Centuria Zenith fund to applications. The fund is acquiring The Zenith towers in Chatswood for $278 million. The fund is jointly buying the property with Blackrock. This is a rare opportunity for retail investors to invest alongside one of the world’s largest fund managers in a high quality “A grade” asset. As per the PDS, this fund will provide investors with a healthy 7.6% starting income which is almost 6% above the current cash rate. In addition, Centuria has identified a number of factors that will drive its valuation over the 5 to 7 year term of the investment. These include;
Within the PDS is a Market Research Report from respected research group BIS Shrapnel who have provided an outlook for the Sydney metro market. This makes for essential reading for anyone who has invested in or is considering investing in Commercial property is Australia. The outlook is very positive and well researched pointing to a lack of supply and increasing demand substantially driving up rents and valuations for commercial property in this sector.
The Zenith property is an ideal investment for a value-add manager such as Centuria and is strategically located to benefit from a strong NSW economy. With such a high quality investment, applications are filling fast. If you would like to reserve your investment contact the Centuria investment services team on 02 8923 8923.
Centuria Metropolitan REIT Update – Nick Collishaw
Portfolio Update – Victor Georos
Market Update – Hadyn Stephens