In recent weeks, The Australian Retirement Trust (ART), the nation’s second-largest super fund, made significant downward adjustments to the value of select office towers in its property portfolio, with markdowns reaching up to 15%.
Likewise, Cbus, the super fund for the construction industry, encountered a comparable situation, downgrading the value of certain commercial real estate holdings by over 10%.
However, despite these property writedowns, both funds successfully provided their members with robust annual returns of 10% and 8.95%, respectively, thanks to substantial gains in the share market compensating for the commercial property devaluations.
Australian vs. the Global Market
A study conducted by McKinsey, the transition towards remote work is projected to result in a substantial devaluation of office buildings in major global cities, amounting to approximately $1.17 trillion over the next seven years.
The study examined nine megacities, including Beijing, Houston, London, New York, Paris, Munich, San Francisco, Shanghai, and Tokyo, revealing a predicted 13% decrease in office space demand compared to pre-pandemic levels in 2019.
It is worth noting that the value of commercial properties in Australia experiences rapid growth during a market upswing, as stated by Dwight Hillier, the managing director of valuation services at Colliers.
However, he also observed a peculiar trend wherein Australian prices tend to decline or undergo writedowns at a relatively slower pace during economic downturns compared to other countries. In contrast, he noted that sentiment-based valuation and pricing have been more prevalent in the US and UK markets.
Mr. Hillier added that the presence of significant global capital in the Australian market during this cycle has potentially reduced this perceived point of difference.