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Australia's biggest landlords and developers played down concerns about inflated commercial property valuations at a conference on Tuesday, while acknowledging economic uncertainty was making investors and renters more cautious.
Commercial real estate prices are a major concern for investors globally as public markets price the impact of a slowing economy and the growth of remote work, while owners, especially unlisted players, resist major changes.
At the Macquarie Australia Conference on Friday, the country's largest office landlord, Dexus, said market pricing implying a 20% to 25% downgrade in asset values was excessive. Premium buildings coupled with signs workers were returning to offices should help protect the portfolio, said chief investment officer Ross Du Vernet.
"It doesn't really make a lot of sense," Du Vernet said at the Macquarie Australia Conference in Sydney.
Dexus has two Sydney central business district sites on the auction block, widely seen as bellwether transactions for how bad the valuation crunch will be. Du Vernet declined to provide a price guide.
Public investors have shunned Australian real estate investment trusts, and the benchmark S&P/ASX 200 A-REIT index remains 21% off a late 2021 peak despite a rally last month.
High-quality assets as a bulwark against big downgrades was a theme for Russell Proutt, chief financial officer at Charter Hall, which manages A$88 billion and splits the bulk of its property portfolio between office and industrial properties.
"We think our valuations should be, not impervious, but relatively stable compared to some of the more significant fluctuations we think you'll see," Proutt said.
Although data shows occupancy rates remain high, questions from the packed audience asked how much floor space clients would seek when contracts come up for renewal.
That question was making large leases harder to lock in years ahead of time, Du Vernet said.
"There's still a lot of uncertainty as businesses sort of grapple with their requirements... I think it is going to be different from pre-COVID, customers are going to be much more cautious," he said.
There have been no "massive cutbacks" for Charter Hall, Proutt said. (Reporting by Lewis Jackson. Editing by Gerry Doyle)