Rising values in Australia’s office sector and shopping malls helped diversified property group GPT deliver a 10.1 per cent increase in after-tax profit of $1.27 billion.
GPT recorded a $717.7 million lift in values across its diverse portfolio of industrial estates, retail centres and office towers.
The group controls landmark buildings such as Australia Square and MLC Centre in Sydney and high-traffic malls like Melbourne Central and Highpoint Shopping Centre in Victoria.
“The office portfolio continues to benefit from its high exposure to the Sydney and Melbourne markets, which saw strong valuation gains and effective rent growth during the year,” chief executive Bob Johnston said.
Demand from the technology sector, including deals with Google, Dimension Data, Adobe and Amazon, accounted for 20 per cent of leasing activity last year, GPT said.
The group’s office towers in Sydney and Melbourne would continue to outperform other capitals with double digit effective rent growth forecast in 2018.
Increased income from its real estate saw funds from operations - the industry’s preferred earnings measure - rise 3.2 per cent to $554.2 million.
GPT issued a 3 per cent rise in its earnings guidance, but warned higher electricity costs were having an impact.
The results were in line with market expectations, with analysts at CLSA saying while the 3 per cent guidance was weaker than they thought, ''historically GPT has upgraded at the half year, which we expect will probably happen again''.
The group renegotiated its fixed contract for electricity which ended last year, but overall costs rose about 42 per cent, an impost that was hard to pass on to tenants, Mr Johnston said.
To offset the impact, GPT was boosting solar panels on the roofs of its vast malls and installing energy efficient lighting.
''One of the critical factors for retail sales will be whether the recent employment growth translates to an improvement in wage levels, which will assist to overcome some of the pressures facing households, including increases in electricity costs,'' the group’s head of retail Vanessa Orth said.
Ms Orth said international specialty retailers, including Sephora and consumer electronic players JB Hi-Fi and Apple were offsetting a decline in department store sales.
"The mini majors category continues to outperform and this is due to the ongoing inclusion of international retailers into the mix such as Sephora and JD Sports, .... and to the expansion of domestic groups like Cotton On and Mecca," she said.
"We have seen outperformance in homewares with strong results across the portfolio for JB Hi-Fi and Apple," she added.
Department and discount store sales were down 5.4 per cent and 2.7 per cent respectively, while retail services, such as nail bar and laser clinics, supermarkets and cosmetic retailers were in high demand.
Consumer spending on essentials had outpaced spending discretionary items.
"Consumers' share of wallet has shifted to items such as housing, financing and health. However, overall discretionary spend still sits at around 40 per cent of household consumption."
GPT acquired the Sunshine Business Estate in Melbourne for $74 million in January. Industrial demand in Sydney was at historic highs, while vacancy om Melbourne's warehouses was declining as tenants absorbed existing space rather than pre-leasing.
GPT 's funds management performed well with funds under management growing to $12 billion at year end.
The group paid a final dividend of 12.3¢, taking the annual total to 24.6¢, payable on February 28.