Cromwell to sell assets as commercial property bubble builds: Paul Weightman
A property bubble is building in Australia’s commercial property market due to a “wall of money” flowing into the sector from offshore institutional investors, Paul Weightman, chief executive of property trust and fund manager Cromwell, has warned.
Speaking at an RBS Morgans function in Brisbane yesterday, Weightman said the current bubble building was different to that which occurred prior to the GFC when rising rents led to compressed capitalisation rates – the amount of time it takes for a building to pay for itself.
He says the current bubble is compressing rental yields without proper regard to the fundamentals, according to his comments reported by The Australian Financial Review.
Weightman added that it was hard to see where office and retail rental growth would come from in capital city commercial property markets in the eastern states (Sydney, Melbourne, Adelaide, Canberra and Brisbane).
“We have enormous amount of capital from offshore looking to find a home in the Australian market but we have pretty poor underlying property fundamentals," he said.
A recent report from Colliers International anticipated no growth in the commercial CBD office market in 2013, but renewed growth from 2014.
The most recent Property Council of Australia office report for the second half of 2012 said net absorption at 83,685 square metres across Australian CBD office markets was the lowest since the six months to July 2009 and less than half the 20-year historical average.
In anticipation of the bubble bursting, Cromwell will look to sell some of its assets and reduce the amount of debt it carries – as it did in 2006 prior to the market collapsing.
Cromwell was recently included in the S&P/ASX 300 Index.
It reported statutory accounting profit of $29.5 million for the six months to December 2012 compared to a prior year loss of $6.8 million
Cromwell has a $1.9 billion commercial property portfolio comprising a mix of office, industrial and retail assets in east coast markets.
Prominent CBD assets include 321 Exhibition Street, a 20 level office building and the 18 level 320 LaTrobe Street both in Melbourne and the twin office tower complex on Victoria Avenue in Chatswood acquired in 2006.
Cromwell property trusts include the recently closed and oversubscribed Ipswich City Heart Trust comprising the $93 million Ipswich City Heart Building, a 9-storey commercial office/retail building to be constructed in the Ipswich CBD offering investors an 8% return.