Australia's commercial real estate markets could be shaken up by merger and acquisition activity early next year, with some landmark properties tipped to change hands at prices likely to spur concerns about a pricing bubble.
Dexus chief executive Darren Steinberg said that listed property trusts appeared underpriced. “Should the disconnect between direct and listed property markets persist, (Australian real estate investment trusts) could appear relatively cheap, leading to further privatisation or sector consolidation activity,” he said.
“Recent small-cap floats are also likely to be subject to consolidation should they trade at a discount to net tangible assets.”
Stockland chief Mark Steinert, who would not be drawn on a Stockland bid for Leighton Properties, said he expected “a few more” floats next year on the back of an improving property market.
This year will finish as a record year for deals with $24 billion of office, retail and industrial property having changed hands to date, according to CBRE. JLL chief executive Stephen Conry said while there had been a substantial inflow of overseas capital this year, there were a number of offshore investors planning to enter the local market within the next year. But fears of a commercial property bubble, first raised by a Reserve Bank note in September, were unfounded because there was no structural issue, but rather overseas investors were following higher yields to Australia, and a lower dollar was increasing the attractiveness of local real estate, according to CLSA analyst Sholto Maconochie.
While the weight of money chasing property has pushed up prices, leasing markets were uneven during the year.
Mr Conry expects the take-up of office space will be positive in 2015, but the overall net absorption would be lower than the decade’s average of 230,000sq m.
Investa Office Fund manager Ming Long said leasing incentives remained stubbornly high across the country except in Sydney. “We will see a two-tier market (in Sydney), with incentives still high for the premium side, while a lot less mid-tier supply will put downward pressure on incentives.”
Despite a patchy commercial property sector, residential developers would benefit from strong population growth. Mr Maconochie said residential developer Mirvac had underperformed, but would outperform next year after it became clear the risk of macroprudential restrictions had been overstated.
Mirvac plans to start work on seven apartment towers in the next year, against an average of two or three towers in the past.
Mirvac chief executive Susan Lloyd-Hurwitz said the possibility of an interest-rate cut had increased, but she expected price growth would moderate.
“Sydney is going to see strong demand continue because there is a very significant undersupply, although parts of Melbourne, like the inner-city investor stock, will slow,” she said.
Ms Lloyd-Hurwitz said Mirvac had restocked its land bank despite rising international competition for sites. “We won’t bid for a straightforward site with approvals already in place; we need an integrated model to unlock value.”
Mr Steinert said internal Stockland forecasts put housing price growth easing to 4-5 per cent in Sydney next year, marginally ahead of other capitals, with Perth lagging behind.
Retail growth would continue at a similar rate to this year, Peter Allen, Scentre’s chief executive, said.
“Notwithstanding recent consumer confidence numbers, the Australian consumer is not broke and will continue to spend,” he said. “In terms of trends, international retailers will expand their businesses across multiple outlets, at different scales, but they will expand across Australia.”
This article first appeared in The Australian Business Review.