July 21, 2023

Commercial office – The silent indicators of market value


In the 15-25% discount to book value range, we see the most significant pricing corrections for older office assets with shorter WALEs and limited tenant demand. In a higher interest rate environment, these assets have not been able to pass through the same rental increases that many newly delivered prime office assets (Premium and A-grade) have.

We’ve actively prepared our portfolio for this possible correction, with highly selective investments into office that have key defensive features:

With approximately 20% of our loan book exposed to the office sector, we anticipate a favourable lending environment to redeploy the upcoming repayments of office loans in this dislocated sector. The ongoing price discovery phase of office and commercial real estate will reset valuations. Our core strategy will continue to focus on new best-of-breed offices. However, as asset prices decline, we may deploy a small portion of our portfolio to support opportunistic buyers in very lowly leveraged loans of refurbished older offices. For example, we recently settled a loan for an Auckland office refurbishment project with initial and peak LVR of 28% and 50% respectively, forecast to return 11.6% to investors (net of fees and costs).

Latest Insights