OzFree Online Real Estate

Australian government has been concerned regarding the critical condition on property in Australia. The Commonwealth Bank’s property manager, Peter Barnes, commented last week: “There may be different sectors that will see more drop in values but the worst is over.”

March 2009, the listed property trust index has risen 75 per cent from a catastrophic low of just 550 points to 950 points, far outstripping the 50 per cent rise in the overall S&P/ASX index since then. The property index had fallen much further and still sits 60 per cent below its 2500-point peak of mid-2007, but a number of trusts, including Stockland and Mirvac, are trading above their (much reduced) net asset value.

There are other vital signs. Macquarie Capital real estate strategist Rod Cornish says yields in the Sydney and Melbourne markets have either reached or risen from their trough. There has been a fall in the number of sub-lease properties on the market as tenants become more confident they can use the space.

Finance is starting to trickle back to the sector. The shopping centre manager, Macquarie Countrywide, last week issued $265 million in commercial mortgage-backed securities, the first such issue in two years. The listed trust sector raised $10 billion in fresh equity capital since the beginning of the year.

Louis Christopher, property director with Adviser Edge, says property trusts looking to acquire properties are getting more offers from their banks than they were, although it is all still expensive. He says the flow of funds from financial planners into the property trust sector is starting to revive. There are the first glimmers of takeover activity.

“At the beginning of the year, it was looking as bad as the early 1990 fall, but the problems are now not going to be that bad,” Mr Christopher said.

During the five years to 2007, office rents soared by 180 per cent in Perth and 230 per cent in Brisbane, whereas Melbourne went up by only about 20 per cent and Sydney 50 per cent in that period.

Property owners are offering incentives to attract tenants, with the effect of lowering effective rents by about 27 per cent in Sydney and about 11 per cent in Melbourne. Cornish expects them to fall further in Brisbane.

No major prime office property has changed hands in Sydney since the crash, so it is hard to get a fix on the yield. However, analysts do not expect it to rise above about 7.5 per cent, against expectations earlier this year that it would top 8 per cent.