Volume Spike, page-22

Reality starting to bite. Most Australian media always late to party, once there's blood on the carpet.

The Age posted a top of page feature today:

https://www.theage.com.au/business/companies/commercial-cannibals-the-landlords-eating-themselves-alive-20230419-p5d1qy.html

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But some offices that were once considered prime – that is, the very best of the assets – or A-grade assets in Sydney and in Melbourne now feel eerily quiet, with many floors vacant, the foyer cafe closed, and the concierge desks dark and unattended. Few workers walk in and out of these towers even at high traffic times. Several new developments in both cities that are already under way have tenants only pre-committed to about 30 per cent of available space.
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It’s a perfect storm that has already resulted in US office landlords handing back the keys to their bankers and the sector awaiting a “tsunami” of refinancing in the US – estimated at $1.5 trillion ($2.24 trillion) – that could put even more pressure on the already strained sector as banks reissue the loans at much higher interest rates. Their values are expected to fall as much as 40 per cent, according to Bloomberg.
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“The vacancy rate should continue to climb as new stock is being delivered and tenant contractions flow through,” Bailey says. “St Kilda Road is a bloodbath and landlords in this market, particularly at the southern end, will have more pain to come. It is a similar story for older, typically single occupier Docklands buildings.”
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Meanwhile, real rents are falling as property owners effectively buy their tenants by offering incentives – such as fit-outs, rent-free periods or rent reductions – that are equivalent to 40 per cent in Melbourne and 35 per cent in Sydney of the lease value.
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“Most of these landlords, the office focus REITs, are cannibalising their own investments by building these very large buildings that we don’t need,” he said.
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In the medium term, office asset quality / location will trump overall trends. But because there's so much sub A grade stock that will never come back and is being written off, the short term could be brutal and pull everything down further than warranted.