Dexus fund to offload $450m office tower in Melbourne CBD

The property at 452 Flinders Street, in the heart of Melbourne, is owned by Dexus’ unlisted wholesale fund, DWPF, which has a $10.7 billion portfolio of office, retail and industrial properties around the country and is backed by capital from more than 70 institutional investors.

The 38,000sq m A-grade building includes 17 levels of office space, a three-level basement car park, ground floor retail and end-of-trip facilities.

Regional train operator V/Line last year signed a long-term lease of more than five years for almost 8000sq m in the building, while global technical services giant Jacobs Engineering Group and ASX-listed telecommunications company Vocus are also major tenants.

There is now more activity bubbling away in CBD office markets than at the beginning of the year when the coronavirus first struck, but deals are taking longer to get over the line, particularly transactions involving offshore buyers as overseas travel to inspect properties is difficult.

However, pricing in the office market is expected to soften as demand for space weakens.

Dexus’ office portfolio has remained fairly resilient after revaluations in June resulted in a 1.5 per cent decline on prior book values, which the group said was a result of the “softer assumptions relating to rental growth, downtime and incentives over the next 12 months”.

Dexus boss Darren Steinberg has maintained his confidence in the market, citing the country’s longer term economic growth prospects and investment demand for quality assets remaining positive.

Analysts at Goldman Sachs have however offered a much bleaker assessment of the market, reporting that the values of Sydney’s top office towers could plummet by as much as 30 per cent over the next few years.

Buyers have approached Dexus about several of its office assets but it is understood the country’s largest office landlord is only open to selling properties at or above their book values.

In June, Dexus sold an office tower at 45 Clarence Street in Sydney for $530 million, in line with the property’s December book value, to Peakstone, a Singapore-headquartered manager of Asian capital, following an unsolicited offer.

The fund manager is now offering up a quarter stake in Sydney’s $2 billion-plus landmark Grosvenor Place tower.

Dexus still has a strong presence at the east end of the Melbourne CBD.

Last year it, together with DWPF, bought the development site at 80 Collins Street in a $1.476 billion acquisition.

Earlier this year, in the midst of the COVID-19 crisis, Dexus partnered with Singapore’s GIC to buy a half stake in Rialto Towers in a $644 million deal.