23-09-2015, 10:46 PM
- OPINION
- Sep 23 2015 at 7:19 PM
- Updated Sep 23 2015 at 8:03 PM
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[img=620x0]http://www.afr.com/content/dam/images/g/j/8/q/o/f/image.related.afrArticleLead.620x350.gjsvwb.png/1443002637930.jpg[/img]Chief executive of Cromwell Property Group Paul Weightman, has warned about market pricing. Chris Hyde
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by Robert Harley
The wave of commercial real estate offerings in the next eight weeks will come close to marking the peak of the current cycle.
The commentary from the Real Estate Investment Trusts reports was clear. All managers expect further yield compression and still more increases in values.
They have been justified as the Chinese sovereign fund CIC bought the $2.5 billion Investa Office portfolio and then as Singapore group Ascendas paid more than $1 billion for one of the best logistics portfolios in Australia. Both deals set prices and yields not seen in this cycle.
But a growing band of REIT managers, including Paul Weightman at Cromwell Property Group, Frank Wolf at Abacus Property Group, Tony Pitt at 360 Capital and Greg Goodman at the Goodman Group, said it was time for caution.
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As Pitt said at his annual meeting this week, its time to focus on the property fundamentals.
The executives marketing the wave of offerings dismiss the concerns.
"There is certainly depth of demand for premium grade assets," says John Marasco, the managing director of Investment Sales at Colliers International.
He points to record low interest rates, the falling dollar and the free trade agreements with China, Japan and South Korea as "significant factors" in the current market.
"This is my third cycle," he says. "Previous cycles were heavily weighted to debt. This time is completely different. What is driving the market is equity."
JLL's head of office investments, Rob Sewell also points back to previous cycles when in 1989 Sumitomo bought a Sydney office tower on a yield of 4.3 per cent.
"We certainly have not got to 1989 levels," he says. "Back then interest rates were much higher."
In a new report, JLL note the record level of offshore investment in Australian commercial property with 27 per cent of major sales in the past year going to offshore buyers, and not just Chinese.
For many that is a reminder of the end-of-cycle foreign entrants who boosted prices ahead of the collapses of the 1970s and 1990s.
Not for Sewell. "What we are seeing is different style of offshore buyer," he says. And the global gorillas, the Norwegian and Japanese sovereign funds and the Chinese life offices are yet to arrive.
Nevertheless Australian property investors have felt the global pain. In six months the ASX 200 REIT index, traditionally a pointer to underlying property prices, has lost 9.5 per cent of value.
On Monday, the bidding for 25 investment offerings at the Burgess Rawson auction in Sydney, was far more subdued than in recent months.
rharley@afr.com.au