Office towers are coming out of the doldrums, says GPT

Artist impression of the GPT Group’s proposed redevelopment of Rouse Hill town centre submitted to council.

Office in the recovery taking hold across the commercial property sector, according to the heavyweight GPT Group.

Despite the group turning in a full year loss of $200.7m after it was hit with hefty property writedowns of $770.7m, it believes the worst has passed, and there are signs of recovery.

“I think retail has been continuing to recover from its negative hit around Covid and logistics is now turning, as the income pick-up is offsetting the capitalisation rate movements, and offices are either in a trough or troughing,” GPT chief executive Russell Proutt said.

GPT is bolstering its focus on funds management, where it believes it can drive earnings, saying funds from operations, a measure of earnings used by property companies, had hit $616.3m, or 32.2c per security.

Mr Proutt said the company had delivered on guidance during the year in which it reset its strategy and executive team, while it emphasised investment management as a core part of the business.

The company has overhauled its wholesale shopping centre fund and recalibrated its portfolio by taking a half stake in Rouse Hill Town Centre in Sydney.

GPT also set up a retail partnership with Perron Group and struck a deal to buy a 50 per cent stake in Cockburn Gateway and Belmont Forum, both in Perth.

GPT Group’s incoming chief executive Russell Proutt

It is now looking to update its office fund after selling buildings last year. “We will be engaging with the investors trying to find the best solution,” he said.

“There’s a shift in the office market; it’s not just sentiment, either,” Mr Proutt said, pointing to the amount of briefs in the market and the high level of demand for space.

“I think that the bigger end of town, the prime and premium asset profile portfolios, they’ll start to perform better,” the GPT chief said. While there will be few new buildings he said that existing assets would benefit.

Longer term, the shift in emphasis towards investment management will see GPT draw more co-investors to its portfolio and attract additional capital to get new projects off the ground.

GPT now has a new executive team, including Merran Edwards (CFO), Mark Harrison (CIO) and Matthew Brown as head of office to help implement these strategies.

The trust has $34.1bn of assets under management and its investment portfolio was 98.6 per cent occupied.

Mr Proutt said 2024 was a year of operational improvement and delivery and called out the lift in occupancy across the office portfolio.

“Coupled with the strong retail and logistics operational performance, this sets up the group for future earnings growth,” he said.

GPT expects to deliver Funds From Operations in 2025 of between 32.5c and 33.1c per security, which would show 1 per cent to 3 per cent annual growth. GPT expects a distribution of 24c per security, which Citi said was broadly in line with expectations.

“This is a foundational year for GPT with a new CEO, CFO, CIO and Head of office with a renewed focus on driving the funds management strategy,” Citi said.

The analyst noted that GPT’s retail performance was strong, office occupancy improved and there was another strong performance in logistics. “We expect the market to positively receive strategic discussions in what will be a foundational year for GPT moving ahead,” Citi said.

GPT shares added 21c to close at $4.86.