A recapitalisation cycle is under way across the Australian commercial real estate sector. Rising interest rates — a response to stubborn inflation and a possible precursor to slower growth — have driven a reassessment of capital costs, both debt and equity. At the same time, a value divergence persists between privately and publicly owned commercial real estate assets. This is particularly evident for those investors with exposure to office markets.

As the table below illustrates, at the end of March 2024, share market pricing implied portfolio write-downs of 14 percent to 18 percent (based on December 2023 book valuations) for three of Australia’s major publicly listed REITs with substantial office-market exposure. Write-downs are also implied for two of the major retail mall REITs, but the valuation discrepancy is more modest.