Charter Hall's $1b office play for Canberra's cardigans
Fund manager Charter Hall has swooped on another Canberra building, taking its tally of office investment in the national capital to around $1.3 billion in less than 18 months as it buys into the federal bureaucracy’s appetite for modern space.
In its latest deal, Charter Hall has acquired a 42,000 square metre twin-tower building at 21 Genge Street occupied by the Australian Tax Office and the Department of Veteran Affairs.
The acquisition, from German fund manager Real I.S., was struck on a generous 7.5 per cent initial yield, which reflects leasing risk in the building as tenancy agreements expire in five years’ time.
In a twist, Charter Hall has already won a pre-commitment from the Tax Office to occupy a $300 million office tower it will develop in Barton, close to Parliament House through a deal struck last September.
Adding to the run of major investments in recent months, Charter Hall set a Canberra record when it bought the Geoscience Australia building for $363.5 million also from Real I.S. In late 2021 it joined with GIC to acquire 50 Marcus Clarke for around $335 million.
For Charter Hall chief executive David Harrison the logic driving those deals is bifurcation, a broader shake-out in the office sector as top corporate and government tenants vote with their feet for modern buildings with superior amenity, leaving older buildings behind.
“In Canberra, we’ve taken a decision with various funds and partnerships to capitalise on this,” he told The Australian Financial Review.
“I’ve never seen the volume of government relocations to and [tenancy] renewals in modern buildings versus 30-year-old and 40-year-old buildings that I’m seeing at the moment and have done for the last few years.”
Around one-third of the 3 million square metres of office space – a roughly $30 billion portfolio of office towers – that Charter Hall manages is taken up by government tenants.
“All levels of government, both federal and state government are moving towards the modern buildings. They want to get their people back to work,” Mr Harrison said.
ASX-listed Charter Hall will partner with its $10 billion flagship wholesale office fund to acquire the Genge Street building. The deal was brokered by Cushman & Wakefield and Knight Frank.
It is an opportunistic move by Charter Hall, taking on leasing risk in a building with strong amenity, large floor plates and just next to the Canberra Centre shopping mall.
“If we can re-lease Genge Street and get the lease term out to 10 years plus, then there’s obviously big upside buying it on a 7.5 per cent initial yield.”
