Slow and steady growth predicted for CBD office market
The health of the CBD office market has been affirmed by Adrian Taylor, CEO of Charter Hall Office REIT, following publication of the company’s annual report.
The majority of CBD office markets are in or entering an “early upturn” stage of the property cycle, says Taylor in his CEO letter.
Strong returns are forecast from the CBD office market, and Taylor says the REIT is “well placed to capitalise on this recovery”.
He expects Australian office market capital and rent growth to continue “albeit at a slower rate due to recently reduced global economic growth, which typically impacts Australian demand for office space”.
The annual report notes the strength of the Sydney office market despite its exposure to the slow-growing financial services sector with net absorption of office space three times the 10-year average for the financial year.
It notes strong take-up of space in Melbourne due driven by a “diverse tenant base”, which eased during the first half of 2011 due to lower volumes of available space and a vacancy rate of just 4.1% for June 2011.
Perth and Brisbane offices are currently benefiting from a resurgent resources sector, with prime vacancies around 3%, the report says.
For the year to June 30, 2011, Charter Hall Office REIT returned to profitability, delivering shareholders statutory profit of $68 million following a loss of $91 million for the 2010 financial year.
Leasing levels increased to a six-year high with terms agreed across 110,000 square metres, taking occupancy rates for its Australian portfolio to 96%.
The REIT operates 18 investment-grade office assets in capital cities worth $1.84 billion, with 87% of its office towers held in NSW and Victoria.
Its most valuable asset is the 41-storey, 71,000-square-metre Citigroup Centre in the Sydney CBD, in which it has a 50% share valued at $360 million.
It is currently considering a proposal from Macquarie Capital Group on behalf of a consortium including global institutional investors to acquire all the remaining shares of the REIT other than those held by Charter Hall Group.
This follows shareholders voting against a US hedge fund consortium proposal to replace the current management of the REIT with its own nominated management team and wind up the trust.
Charter Hall is currently in the process of selling its US office portfolio to Beacon Capital Partners for $1.7 billion, which is due to be completed in May 2012.