Powered by MOMENTUM MEDIA
subscribe to our newsletter
Record-low rates drive office yields to pre-GFC lows

Record-low rates drive office yields to pre-GFC lows

Close to four years of yield compression has pushed Sydney’s CBRE office yields to a historical, pre-GFC low — with potential to fall further, new research shows.

CBRE’s latest Market Flash report highlights that Sydney CBD core prime office yields reached a nine-year low of 5.2 per cent in Q3, while secondary yields are 20 basis points off their pre-GFC low of 5.9 per cent.

CBRE’s senior director, Sydney CBD Office, Valuation & Advisory Services, Michael Pisano, said while the office sector was reflecting similarities with the market pre-GFC, there were key differences that suggest the current growth cycle could be maintained for longer.

Advertisement
Advertisement

“Capping off an impressive run in yield compression over the past three and a half years, Sydney CBD office yields have reached pre-GFC lows — without the same level of market rental growth to stimulate pricing when compared to the market in 2007,” Mr Pisano said.

“Evidencing this, the drivers of the current market are vastly different when compared to the previous cycle, which further suggests a greater degree of sustainability.”

CBRE says that in the current market, the sustained low interest rate environment has been the main driver of yield compression — compared to optimistic income growth assumptions.

CBRE head of research Stephen McNabb said the Reserve Bank’s approach to monetary policy had created an environment that was conducive to a healthy commercial property market.

“A long period of lower interest rates has been the key stimulus to the current cycle, however the next phase will be supported by lower vacancy rates and forecast rental growth,” Mr McNabb said.

“The other difference between now and the pre-GFC peak is that the fundamental outlook for the Sydney office market is looking solid. Vacancy — currently 5.6 per cent — is expected to fall to 3.3 per cent by 2018 and prime effective rent growth is running at a 23 per cent annual rate in Q3 2016.”

He added: “Importantly, this rent growth is following, not leading, the yield compression which is in stark contrast to the performance of the office market after the GFC.”

Mr Pisano said strong rent growth in Sydney could provide further scope for yield compression, however there was an absence of prime stock being put to the market at present.

“Importantly though, we will witness activity in the second half of 2016 in support of yield compression in the secondary market and the narrowing of the gap between prime and secondary yields,” Mr Pisano explained.

[Related: Mezzanine funder joins major banks on 'de-risked' Southbank deal]

Record-low rates drive office yields to pre-GFC lows
mortgagebusiness

 

Latest News

APRA’s proposal to loosen serviceability measures could reignite the credit boom, Moody’s has said, amid growing expectations that the m...

The median time on market for a residential dwelling has almost doubled, reflecting subdued demand for housing amid falling property prices,...

NAB and Westpac are among the 56 banks to endorse the United Nations’ Principles for Responsible Banking that will be launched in Septembe...

FROM THE WEB
podcast

LATEST PODCAST: How the mortgage sector will be impacted by the federal election

Do you think the banking royal commission recommendations could negatively impact competition in the mortgage market?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.