WITH an emerging recovery in Australian commercial real estate, there should be a performance gap between assets in the top-tier (prime) and mid- to lower-tier (secondary) markets.
Ordinarily, prime markets improve earlier, and more swiftly, during the initial recovery as investors narrow their focus on to core assets.
The pattern of bank lending is favouring prime markets over secondary markets. While banks are becoming more comfortable with lending on top-quality assets, that support does not necessarily extend into the secondary market. With many property syndicates maturing by 2012, refinancing their bank debt may be a challenge with more secondary assets expected to be put up for sale.
Sydney and Melbourne are the focus of major global and domestic investors, given their better growth potential, firmer demand-supply balance and rental affordability.
Real office rents in these markets are at cyclical troughs, with yields near cyclical highs.
For retail, the focus on the best-quality properties is similar. There are only a limited number of major regional shopping centres in Australia, which don’t often come up for sale; pricing barely fell in the global downturn. Capital-rich investors are taking advantage of the high yields in this sector, expecting yields will tighten when debt markets improve.
This means investors are increasingly looking at prime office and retail assets. For some, this may mean an investor club to get the necessary scale or a fund with a strong management team to access a prime portfolio.
Rod Cornish
October 04, 2010 8:39AM
Source: Perth Now
http://www.perthnow.com.au/business/prime-office-and-retail-at-premium/story-e6frg2ru-1225933779521
