The ongoing strength in the office and industrial markets has been reflected in the latest set of valuation numbers at Dexus with an increase of $656 million or circa 4% on the June 2019 book values.
Dexus revalued 109 of its 118 assets, comprising 43 office properties and 66 industrial. The weighted average capitalisation rate across the total portfolio tightened 17 basis points over the past six months to 5.09%.
The weighted average capitalisation rate of the office portfolio tightened 17 basis points from 5.15% at 30 June 2019 to 4.98% at 31 December 2019 and the industrial portfolio weighted average capitalisation rate tightened 14 basis points from 5.92% to 5.78%.
Darren Steinberg, CEO of Dexus said: "Investment demand for quality office and industrial properties combined with a lower for longer interest rate environment continue to flow through to the capital values of our properties."
The majority of the office portfolio valuation uplift was driven by both capitalisation rate compression and market rent growth. Key movements were;
- One Farrer Place in Sydney increased in value by $90.2 million due to market rent increases and a 28 basis point tightening in the property's capitalisation rate.
- The MLC Centre in Sydney increased by $52.7 million driven by leasing success and 23 basis points of capitalisation rate tightening.
- 44 Market Street in Sydney increased $34.5 million following completion of the retail redevelopment, an uplift in market rents and a 12.5 basis point tightening in the property's capitalisation rate.
Valuation increases across the industrial portfolio were driven by continued capitalisation rate compression at properties across key Eastern seaboard markets supported by an increase in transactional evidence.
Darren Steinberg said: "We've seen a significant increase in enquiries both from domestic and offshore investors seeking to invest directly in office and industrial properties through our funds management business. This increased interest is partly a function of the relative pricing at an attractive spread to bonds and rent growth prospects in Australia compared to global cities. As a result, we expect to see further valuation increases over the next six to 12 months."
As a result of these valuations Dexus's net tangible asset backing (NTA) per security is expected to increase by 60 cents.
Details relating to specific individual property valuations will be available in Dexus's 2020 half year results which will be released on Thursday, 6 February 2020.