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Strong demand for office sector

REAL estate investment trusts with an Australian focus are heavily sought after amid suggestions that corporate activity will soon dominate the sector.

REAL estate investment trusts with an Australian focus are heavily sought after amid suggestions that corporate activity will soon dominate the sector.

GPT has been keenly bought as some investors suggest a union with Dexus Property. Such a deal would create a formidable diversified Australian-based trust with an exposure to the premium and A-grade office market.

If a merger eventuated there would also be no concern about selling non-core assets, some of which they already co-own, as demand for local office towers with high occupancy is high.

That was shown by the sales in recent weeks of 1 York Street and 20 Martin Place at high prices.

CBRE's regional director, Rob Sewell, said the 20 Martin Place sale generated significant interest from domestic and international investors.

"Domestic superannuation funds and trusts were in a very competitive bidding process alongside local and offshore funds," he said.

GPT is also testing the market with the sale of its half share of the MLC Centre in Martin Place. The asset sales and potential takeovers come as overseas markets continue to falter.

The main theme at the fifth annual Bank of America/Merrill Lynch global real estate conference in New York last week was that heightened concerns about a weaker economic outlook have not yet affected the US market.

The panel of international property analysts and landlords said tenant confidence seems to have declined in the last month, but 2011 continued to be a good year in terms of leasing volumes.

According to Merrill Lynch's property analysts, the panellists said that tenant demand globally was strongest from technology, energy and natural resources, with no signs of a slowdown in these sectors.

The conference heard that risks of contraction in demand from big bank lay-off plans could be offset by expansion from smaller banks and investment firms.

In the US, good leasing volumes continue in New York, San Francisco and Boston, and there is strong interest in London. Demand is also strong in Sydney and Melbourne, where real rental growth continues.

The conference concluded that the macro economy in the US remains fragile with problems in housing, unemployment, consumer and business confidence, and leverage.

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