Australian commercial property values reached an all-time high by the end of 2016, out-pacing the levels achieved in 2007 on the eve of the global financial crisis.
The move, underpinned by bond rates, has JP Morgan analyst Richard Jones tipping the market's peak in his 2017 outlook for the Australian Real Estate Investment Trusts market.
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"We think the uptick in bonds is likely to see our adopted asset values as top of the market this cycle," Mr Jones said.
The move comes as seven major A-REITs post a swag of revaluations, adding nearly $1 billion, or 6 per cent, to the value of their portfolios.
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The value of Vicinity's Chadstone Shopping Centre, half owned with retail magnate John Gandel, increased 3.5 per cent, or $508 million, to $5.25 billion. It's capitalisation rate has tightened 50 basis points to 4.25 per cent.
And Southgate, sold by Dexus last year for $578 million, has already been revalued by its new Singaporean owners at $597 million.
JP Morgan's outlook notes that capitalisation rates are at "all-time lows for all asset classes, having surpassed the pre-GFC levels", as yields were compressed by 25 to 75 basis points in 2016.
Mr Jones noted the fourth quarter of 2016 recorded the strongest result as rates were compressed by 10 basis points. Neighbourhood shopping centres contracted 34 basis points after a series of strong transactions.
In December, Charter Hall Retail REIT paid ISPT $67.1 million for the Arana Hills Plaza in Brisbane on a 6 per cent yield and, in November, the Coburg North Shopping Centre fetched $38 million on a yield of 4.94 per cent.
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"The compression in office cap rates has been driven by, amongst other things, an improved outlook for rent growth in Sydney and Melbourne," he said.
The report found Sydney net effective prime rents rose by 15 per cent in 2016 and the lack of new office supply in the next four years meant it would likely increase by 10-15 per cent as the vacancy rate fell. Prime rents could reach historical highs of $1100 a square metre.
Melbourne's equivalent rents rose 11 per cent in 2016 and could see some rental growth. But nine projects covering 290,000 square metres of space were expected to be built in the next four years.
Meanwhile, Mr Jones warned that local apartment buyers were considered more of a settlement risk than foreign buyers when it came to the over-supplied Melbourne and Brisbane markets.
While overseas buyers were taking extra time to get their finance sorted after the refusal of Australian banks to fund their purchases, there were question marks over local buyers' capacity to raise the equity required to complete settlement.
"We are hearing of examples where the bank valuations are coming in about 10 per cent below purchase prices in and around the Melbourne CBD," he said.
"We are more concerned moving forward on domestic purchases settling. We believe some domestic purchases are going to struggle to come up with the equity required to fund the lower bank valuation and potentially lower [loan to value ratio]."