Chatswood's Zenith Centre sets new price record
A set of two office buildings in Sydney’s north shore suburb of Chatswood has set a new benchmark in commercial property after selling for a record price for an office asset outside of the CBD.
US fund manager Starwood Capital, in a joint venture with Arrow Capital Partners, bought the Zenith Centre on Friday afternoon for $438.2 million from joint owners local fund manager Centuria and US giant BlackRock. It is understood the deal was struck on a yield of between 6 and 6.5 per cent.
The two 21-storey A-grade office towers are fully let to Property NSW, Commonwealth Government of Australia, Lendlease and Sage on a weighted average lease expiry of 4.3 years.
BlackRock and Centuria bought the property, which has a net lettable area of about 44,400 square metres and 785 parking spaces, from DEXUS and GPT in 2016 for $279 million.
Knight Frank’s Tyler Talbot and Ben Schubert and CBRE’s Michael Andrews and Scott Gray-Spencer brokered the deal.
Starwood Capital Group vice president James Fogarty said the global investment firm was pleased to continue its targeted investment strategy in Australia given the economy, underpinned by strong fundamentals, would continue to strengthen Sydney’s office market.
“We like the north shore office market, and Chatswood in particular given the limited supply, robust demand and transformative infrastructure improvements that are underway,” Mr Fogarty said.
“The Zenith is a landmark within the Chatswood market and has strong appeal to tenants across a range of sectors and provides high quality space to users at a competitive price point,” he added.
The Zenith acquisition is the second joint venture between Starwood and Arrow Capital Partners. The first was in 2017 when together they bought a seven-level office tower in St Leonards for close to $160 million.
Kurt Wilkinson, partner at Arrow Capital Partners, said Zenith was the premier A-grade asset in Chatswood and had been an attractive proposition because of its uniquely large land holding and high-quality tenant base.
“We intend to inject further capital and asset management expertise to enhance the offering to our tenants and ensure that the Zenith remains the standout office asset in the Chatswood office market,” Mr Wilkinson said.
The sale is symbolic of Sydney’s strong office market as limited supply – a result of both pent-up demand and stock withdrawals for government infrastructure projects – continues to tighten vacancy rates and tenants look beyond the CBD to find office space.
Sydney CBD’s prime vacancy rate is 3.7 per cent and average prime gross face rents increased by 10.9 per cent over the year to Janunary 2019, according to Knight Frank’s latest research.
The prime office market in Chatswood recorded net effective rental growth of 12.1 per over the past 12 months to March.
Centuria’s head of real estate and funds management Jason Huljich said in an announcement to the ASX on Friday that the intention had been to hold onto the property for a longer period, but that buyer interest had been extremely strong.
“Investors in the Centuria Zenith Fund have benefited from attractive quarterly distribution returns as well as enjoying a substantial capital gain from the sale reflecting the strong rental yield and capital growth driven by extremely strong market conditions,” Mr Huljich said.
“Success for The Zenith has been further underpinned by Centuria’s collaborative approach alongside our wholesale partner, BlackRock, resulting in milestones from the asset plan being achieved ahead of schedule,” he added.
