Dexus defies market jitters with $273m office sale
The country’s biggest office landlord, Dexus, has defied the market jitters with the sale of a key office tower in North Sydney for $273 million, with the funds being used to repay debt.
The tower at 60 Miller Street was snapped up by an overseas-based investor, understood to be the Hong Kong group Huge Linkage, at a 3 per cent premium to book value.
The North Sydney office is undergoing a resurgence after two decades of high vacancy rates and an oversupply of residential developments.
Dexus has earmarked up to $1.5 billion in office asset sales as it pivots the business towards having more funds under management through a suite of unlisted diversified trusts.
Dexus chief investment officer Ross Du Vernet said the sale reinforces private market demand for quality office assets in Australia’s gateway cities.
“The sale improves portfolio composition and enables us to organically fund growth in our development and funds management businesses, while preserving capacity for further capital management initiatives,” Mr Du Vernet said.
The group, which is also increasing its asset allocation to the health and medical sector, has confirmed it has made an offer for an AMP Capital-managed wholesale fund, amid speculation it could make a tilt for the rest of the platform.
The 60 Miller Street asset is a 17-level, A-grade office tower with ground-floor retail across 19,350 square metres, and located in the centre of North Sydney’s financial district. It was built in 1987.
Tyler Talbot and Dominic Ong from Knight Frank advised Dexus on the sale.
Mr Talbot said recently that North Sydney continues to receive strong interest from both domestic and international investors as rents are proving to be more resilient when compared with the CBD.
“Purchasers are keen to buy in this growth market with a number of transactions taking place which will demonstrate solid asset performance for the precinct since COVID-19,” Mr Talbot said.
The 60 Miller Street property is 97 per cent occupied and has a weighted average lease expiry of 3.5 years. Key customers include Covermore and Flight Centre.
Having enjoyed office vacancies in the double digits for the past decade, North Sydney is now attracting a diverse selection of tenants including Nine Entertainment, the owner of this publication, SAP and Microsoft that occupy the new 1 Denison Street tower owned by the Winton Property Group.
This has led to a rise in sales of large assets, with the American Nuveeen testing investor appetite with the sale of a half share of the North Sydney landmark 101 Miller Street and Greenwood Plaza, with a value of about $500 million, through Knight Frank and Colliers International.
But the global pandemic has dampened deals overall, with transaction volumes falling by 58 per cent compared with the previous year, with $10.96 billion trading over the first three-quarters of 2020.
Colliers International managing director John Marasco said the office and retail sectors had felt the largest impact, down 75 per cent and 29 per cent respectively from 2019 levels at the same point.
“So far in the first half of 2020, the assets that have traded have shown minimal movement on yield metrics, reflecting significant pent-up capital seeking placement and the lack of stock available for sale, which bodes well for the sector,” Mr Marasco said.
“We are seeing the flight to quality thematic is beginning to play out as investors chase strong covenanted assets with long weighted average lease expires.”
