Larry Schlesinger | 13 July 2011

Industrial to face lesser carbon tax impact than offices: Goldman Sachs

A-REITs that hold a majority of industrial assets will be better insulated against the impact of the government’s carbon tax scheme while those that own business parks will be worse off, according to a leading analyst.

“Our analysis suggests gross rents could be impacted by between 0.1% at the low end and up to 0.6% at the high end, with industrial property least impacted and business parks most impacted,” says Goldman Sachs analyst Simon Wheatley in a note looking at the impact of the tax.

Impact on gross rent

Typical

gross rents

($sqm)

Carbon tax

cost

increase

($/sqm)

Carbon tax

impact on

gross rent

Office 

$800 

$3.06 

0.4%

Retail 

$1,800 

$2.86 

0.2%

Business parks 

$350 

$2.06 

0.6%

Warehouses 

$120 

$0.13 

0.1%

Source: GS&PA Research Estimates

Increases will relate to common area energy charges which are typically recoverable from tenants since most leases in the A-REITs sector are net leases.

The cost estimates are based on the assumption that the carbon tax will passed through to commercial property landlords and tenants.

According to Goldman Sachs, some A-REITS such as GPT have already been preparing for a likely carbon tax by focusing on reducing energy intensity costs over the past six years.

“GPT has saved energy costs estimated by GPT at $8.3m, averaging $1.38m per year, which will help soften the blow to tenants of the carbon tax impost, in our view,” the analyst note says.

Goldman Sachs expects investors to prefer prime or A-grade office portfolios such as those managed by Commonwealth Property Office Fund, Dexus and GPT due to the risk that older buildings may see their capex requirements pulled forward as a result of the carbon tax scheme.

The carbon tax is expected to have no discernible impact on asset valuations with slight reductions in net rents offset by higher market-led rents as construction costs increase.

The investment bank has not adjusted any earnings estimates or valuations of A-REITS as a result of the likely carbon tax impact.

The government’s carbon tax scheme, unveiled on July 10, proposes a carbon price of $23 per tonne.

The scheme is due to take effect in July 2013 and will rise at 5% per annum for the initial three years of implementation.