Office Market Monitor | 2022 13 The office market in Australia is heavily exposed to monetary policy decisions of the RBA, as yields (or capitalisation rates) tend to move in line with the 10-year government bond rate. Yields on 10-year government bonds have risen from 0.89% in March 2020 (roughly the start of lockdowns) to 3.92% as of October 2022. The last time yields were this high was around April 2014. In addition to a serious increase in the 10-year bond rate, the inherent risk in office property has increased as tenant demand is now much harder to understand. This in turn has increased the risk premium that many investors will need above and beyond the 10-year bond rate. That being said, many large institutional investors are still very confident in office property long term, particularly prime grade CBD space. While there have been wild swings in industry expectations of value throughout Covid (remember in early 2020 we were more or less guessing on the length and severity of impact of the pandemic on commercial property markets), patterns of expectations of capital value have now settled. Due to the difficulty in getting people back into the office, the capital value expectations of office property are the lowest amongst the three major asset types. It is likely we won’t see a recovery in this sentiment until the monetary policy tightening cycle starts to ease or is stopped, and more office workers head into the office with more regularity, thereby giving the industry more comfort around future demand conditions. Investment market Property Industry Expectations on Capital Value Source : ANZ/Property Council Survey 20 0 -20 -40 -60 -80 -100 Industrial Retail Office Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
RkJQdWJsaXNoZXIy MTI3ODI1