Office landlords have reported significant lifts in asset values, with Dexus leading the way recording a $660 million change in its portfolio across the country.
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In its external independent valuation to December 31, Dexus said 96 of its 103 assets, comprising 44 offices assets and 52 industrial properties saw an average 5.3 per cent rise, equal to $660 million on prior book values.
While this is good news for investors in office assets, its also spells out higher rents for tenants as demand for space is outweighing supply, particularly at the premium end.
JLL's head of research Australia, Andrew Ballantyne, said he expect that 2018 will be the year that forecast is realised with the Sydney CBD vacancy rate compressing to 4.6 per cent.
Mr Ballantyne has forecast the momentum effect will push net effective rents higher in the Sydney CBD over the next 12 months.
''We expect that effective rents have the potential to increase by a further 9 per cent over 2018," Mr Ballantyne said.
There is some relief in coming years a more assets currently under development or pending approval come to fruition.
One will be the proposed $1 billion mixed use site at Circular Quay by Lendlease, and the nearby planned $1 billion office tower by AMP Capital.
There is also the proposed tower at Martin Place by Macquarie Bank, although Dexus, which is a co-owner of the MLC Centre, opposite, has lodged a complaint with the City of Sydney, saying the tower will be over-shadowed by the bank's site.
Dexus chief executive Darren Steinberg said the strength of the fundamentals in the Sydney and Melbourne office markets, combined with solid transactional evidence across office and industrial properties has seen a strong uplift during the past six months.
Mr Steinberg said there was also signs of improving leasing conditions in Perth and Brisbane.
''The majority of the valuation uplift was due to the increase in market rents and further capitalisation rate compression in Sydney and Melbourne,'' he said.
In Sydney, 45 Clarence Street increased by $55 million, while 383-385 Kent Street saw a $76 million rise in value. The cap rate, a measure of the revenue generating capacity of a property, hs also firmed as have rents.
The $600 million tower at 100 Mount Street, currently under construction and the new home of the NBN, saw a rise in value of $36 million on a cap rate of 5.25 per cent.
In Melbourne, Dexus said the industrial portfolio, also had strong leasing at recently completed developments located at Laverton. Dexus is also developing a $25 million logistics centre in Truganina for food producer Simplot Australia under a seven-year lease.
Investa Office reported an independent valuation rise of between $78 million to $83 million over five of its key properties in Sydney and Brisbane. This is a 23 per cent jump in the portfolio's book value.
Two of the Investa assets revalued, being 6 O'Connell Street and Piccadilly Complex, are located in Sydney and have experienced strong market rent growth and cap rate compression.
The remaining three assets located in Brisbane, being 140 Creek Street, 295 Ann Street and 232 Adelaide Street, collectively known as The Complex, benefited from cap rate compression resulting from continued demand for high quality, long leased assets.
Investa Office fund manager, Penny Ransom, said recent sales evidence continues to demonstrate strong investment demand for CBD office assets.
''This has resulted in further cap rate compression across the five assets revalued with the weighted average capitalisation rate (WACR) decreasing by 37 basis points,'' Ms Ranson said.
''IOF's portfolio is well positioned to benefit further from its 63 per cent weighting to Sydney where market rents are forecast to increase further, investment demand is expected to remain strong, and with major opportunities to add value at Barrack Place, 347 Kent Street, and 388 George Street.''
According to JLL research 2017 has been an ''interesting year'' for the Sydney CBD office market. JLL research recorded the lowest vacancy rate 6 per cent in third quarter of 2017 since the first quarter of 2008 when it was 5.7 per cent.
JLL's head of office leasing - NSW, Daniel Kernaghan said the past year has seen the Sydney CBD office market go from strength to strength.
''Vacancy is now the lowest level in close to a decade, and average effective rents across both prime and secondary stock have had double digit growth for a third straight year,'' Mr Kernaghan said.