How Much Commercial Office Space is on the Market?
At MP Funds Management we have investment exposure to the commercial office sector. We believe the commercial office sector can be a valuable store hold of wealth however, with vastly shifting levers such as an increase in interest rates, reduced physical occupancy due to work from home, and a range of other factors, pricing and value in the sector overall are changing; with cap rates expected to blow out and values believed to be trending downward as a general theme across the sector.
In saying this, we don’t buy markets, we buy deals where we believe the economics and property fundamentals are sound, where we believe the risk is mispriced in the favour of the investor. Often commercial leases will be indexed to inflation which can be a beneficial hedge, we are also big believers that in general, workplace productivity requires a working environment conducive to productivity, which can be contrary to the work-from-home push.
A flight to quality is an evident tenant-led trend and incentives in A-grade and prime commercial office space have blown out to 35-40%, which is significant. Several larger corporates are subleasing major parts of their existing leasing commitments, creating a shadow market, meaning the actual vacancy quantum is a bit harder to track.
Investment banks have written down the NTA value of many of the REITs that have significant commercial office exposure, with the belief that commercial office values are worth 20-30% less than the period prior to the increase in interest rates. However, there have been no actual commercial office sales transactions of note to quantify this reduction in value to the sector. (*Note several transactions are mooted or in negotiations with none having been completed as of today’s date, with 44 Market Street, Sydney anticipated to be the first significant benchmark of value for this extended period of market inactivity).
Join us as we dive deep into the levers that influence investment value and risk in the commercial office sector with Ian Hetherington, one of Australia’s most prolific commercial office sales agents, with over 35 years of experience and an estimated $35billion in transactions executed, Ian provides deeply educated and data backed views on where he sees risk value and pricing in the market.
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A Division of MP Group International
With over $4 billion in facilitated investments and an average annual return of 22% (net of fees and before tax), MP Funds Management has strong real estate investing experience.
Note: Past performance is not a reliable indicator of future performance.
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Latest from the Property Investment Podcast
Stay informed and gain valuable industry knowledge by tuning in to The Property Investment Podcast, hosted by Mandi Prager, CEO of MP Group International. Check out the latest episodes:
Ep 23: Ian Hetherington, Director, Ray White Capital Transactions
Ep 22: Terry Andriotakis, Lateral Group
Ep 21: Michael Hynes, joint MD, Stamford Capital
Ep 20 (Pt.2): Matthew Hyder, CEO of Legacy Property
Ep 20 (Pt.1): Matthew Hyder, CEO, and Scott Girard, Head of Property, Stirling Property Funds
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Watch on YouTube
Listen on Spotify
Listen on Apple Podcasts
MP Report Premium
Get detailed deal and property market analysis overlaid with the MP Funds Management view via the MP Report Premium.
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This communication is not intended to serve as investment advice or an investment recommendation. The content does not take into account your financial objectives, situation or needs. You should do your own research and, if appropriate, obtain independent advice from a suitably licensed professional before making investment decisions.
* Actual investment performance may differ materially from forecast returns.
** Please note that past performance is not a reliable indicator of future performance.