Recently, a set of commercial real estate data charts about Australia has attracted attention. Meanwhile, in the past week, the banking crisis in the United States and Europe has made people start to pay attention to the issue of losses generated when long-term assets (such as bonds or real estate) are valued at current market levels.
Some professionals have expressed concerns about the current development of the commercial real estate industry. If there is a price drop of 10% to 20% in the next few months, the valuation of commercial real estate may cause significant damage to large institutional owners of CBD office buildings.
According to data from Morgan Stanley, the spread (or difference) between the 10-year Australian government bond yield and commercial real estate yield is at its narrowest in 15 years, making this asset class less attractive as investors can get similar returns by investing in bonds without the additional risk.
In the central business district of Sydney, the capitalization rate of office buildings is about 4.89%. However, analysts at financial services company Barrenjoey predict that the capitalization rate will expand by around 115 basis points to 6.03%, and the book value will decrease by 15% to 20%.