Housing surge cushions real estate trusts amid tough conditions

Major landlords are looking to their residential and retail arms as offices remain in the doldrums.

Major landlords are looking to their residential and retail arms as offices remain in the doldrums. Picture: David Swift

The nation’s housing market and shopping centre sales are holding up in the face of higher interest rates but major property companies are still dealing with challenging conditions.

Listed heavyweights Mirvac, one of the country’s largest housing developers, and Vicinity Centres, co-owner of Melbourne’s massive Chadstone Shopping Centre, have stuck to their earnings guidance in the face of pressures on commercial property.

Mirvac was bolstered by its housing operations with demand in the last quarter still strong for both new homes and apartments in major cities, despite higher costs hitting buyers.

At the same time, it is looking to get major office projects off the ground and is in talks with potential backers of a new $2bn tower at Sydney’s Circular Quay.

It has also made progress in offloading unwanted office properties, selling an office block in Melbourne’s La Trobe St to Malaysian developer S P Setia for about $88m, while it remains in talks to offload 367 Collins St to Hong Kong group PAG for about $340m.

The Australian has learnt that S P Setia will dump Mirvac’s long-planned office project and instead build a large residential block as part of the trend of converting sites into apartments.

Jarden analysts said that after Mirvac’s recent underperformance, its move to reiterate guidance could come as a positive surprise but this still relied on the settlement of asset disposals and one-off trading profits, suggesting risk remains on the downside.

“Residential momentum remains tough but not worse than expected and commercial metrics all seen in line with previous trends,” they said.

Jarden said Mirvac had made solid progress on asset sales with about $470m sold this financial year and $550m under heads of agreement, with a further $80m to come.

Mirvac had 933 residential sales at the end of the third quarter, with pre-sales at $1.3bn. Inquiries were strong during the March quarter and the developer is well positioned to benefit from a pick-up in buyer activity with the addition of about 8400 lots to its pipeline.

Citi analysts said that Mirvac’s repositioning away from office into living and logistics sectors is likely to create a high-quality company in the future.

“Moreover, a large development pipeline of quality mixed-use commercial and apartment projects, as well as exposure to a growing build-to-rent sector, are relatively attractive,” they said.

Meanwhile, Vicinity chief executive Peter Huddle said the company had robust operating metrics and executed further on its investment strategy. The company has also capitalised on the pick-up in interest in mid-size malls, selling off Kurralta Central, Dianella Plaza and Roxburgh Village.

“Our operating metrics remain strong and continue to be underpinned by retailer demand for physical stores, particularly in our premium centres, and strong retail sales growth since the end of the pandemic,” he said. The company said that comparable net property income growth for the full year would remain in line with the December half at about 4 per cent.

“Furthermore, we retain our view that the medium to long term fundamentals of the Australian retail sector remain favourable, supported by record levels of migration, a robust employment market, and stage three tax cuts,” Mr Huddle said.

In March, Vicinity took full control of Chatswood Chase by buying out Singaporean sovereign fund GIC and then kicked off a $620m retail redevelopment.

“The redeveloped asset will house the largest luxury retail precinct in New South Wales outside of the Sydney CBD,” Mr Huddle said. About 70 per cent of the project income has been locked in and it is expected to be fully leased by Christmas as part of its strategy of up-weighting premium retail assets, including Chadstone and its outlet centres.

Mirvac shares were flat while Vicinity dropped by 4.5c to $1.88.