The Australian commercial property sector has reached an inflection point, with improving metrics being reported by the listed A-REIT sector. Investors appear to be regaining confidence, as A-REITs indicated property income continued to grow, occupancy rates remained stable, and capitalisation rates stabilised or began to recover.
So far, the market has distinguished between sectors that are further along in their recovery or where the risks appear to have abated, such as the retail sector, and sectors that are lagging, such as office.
Fundamentals drive rerating
This distinction is clear when comparing A-REITs’ operating metrics (especially net of leasing incentives) to their recent trading performance.
In the past three to four years, most A-REITs have reported occupancy of at least 90 percent (see chart on page 29). Office REITs have been at the lower end of this range (and broader market occupancy levels have been lower still, with
