Welcome to this week’s Property News.
The office markets were buoyed this week following Charter Halls $780m investment into the sector on an average passing yield of 5.2%. The properties are characterised by long leases to Commonwealth government or government supported tenant customers with an average WALE of 9.1 years making them an ideal target in an uncertain market.
With respect to the ongoing impacts from COVID on the commercial office market, there is growing evidence of tenants handing back parts of their space and reducing lease term commitments to contend with more staff working from home and an uncertainty about future space requirements. There is also growing evidence of a flight to quality with some tenants taking lease expiry opportunities to relocate to smaller accommodation in a superior location / building.
Impacts will be felt across the office market, but particularly in B and C Grade stock in the CBD markets, where vacancy will rise significantly.
Whilst we do have some REITs in our Top Picks List that have exposure to the office market, we remain cautious on the CBD markets.
Generally, we continue to favour investment or development property underpinned by long term secure tenants who rely on non discretionary consumer expenditure. These include neighbourhood convenience retail, medical & health facilities, education and child care services, fuel & automotive services.
The ability to capture increased income that comes with economic growth and inflation or the reversionary value that is associated with these are important. Assets with access to market rents in 4-5 years time are likely to be more valuable than those with much longer term leases.
As you would expect, we are also still cautious on hotels, regional and major / regional shopping centres but expect there will continue to be opportunistic buying that can deliver good yields.
If you have any news, information or research reports you’d like us to share with the market, please feel free to send me an email at info@propertymarkets.news.
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