Former analyst pays $48m for Brisbane office tower
Former CBRE research analyst Jacob Fong has joined the growing number of private investors making counter-cyclical investments in the struggling office market after paying $48 million for a partially vacant tower in the Brisbane CBD.
In March, when Mr Fong and his wife exchanged contracts to acquire the 12-storey building at 119 Charlotte Street from the Uniting Church (on a yield of 7.5 per cent), more than a third of the B-Grade property was empty.
But he said he was comfortable paying slightly above book value – the tower was valued at $47.15 million as at June 2023 – because it was in the tightest sub-precinct in the Brisbane CBD.
Known as the Midtown precinct, bordered by Elizabeth Street and Alice Street to the north and south, and Albert Street and Edward Street to the west and east, it has a vacancy rate of 5.6 per cent, according to a May report by office leasing specialist Caden Research.
This compares with an overall CBD vacancy rate of 9.5 per cent and vacancy rates of 12 per cent in the city’s legal precinct at the north-western end and 9.5 per cent in the financial precinct between Eagle Street and the Brisbane River.
Taking advantage of his research background, Mr Fong said he had taken “extremely deep dives” into the Brisbane market to identify the best buying opportunities.
“I believe there is a tiered office market, especially in Brisbane, [based] mainly around the profile of the seller and how motivated they are to selling,” Mr Fong said.
He added that Brisbane’s office vacancy rate was likely to tighten given a lack of new supply entering the market over the short term coupled with withdrawals of space as buildings like 150 Charlotte Street (sold by Australian Unity for $64.5 million in April), with 11,000 sq m of lettable space, are converted to other uses.
The Fongs’ acquisition of 119 Charlotte Street follows a wave of private investors and unlisted real estate funds snapping up office buildings from ASX-listed real estate investment trusts such as Charter Hall, Centuria and Abacus.
Much of this buying activity has been focused around Brisbane and the Gold Coast, which offers acquisition opportunities at lower price points and at higher yields.
Earlier this month, fund manager Exceed Capital paid Centuria $37 million for a three-storey property in Toowong in inner Brisbane and is targeting cash returns of more than 8 per cent.
“We’re a countercyclical investor who’s buying off the A-REITs at a lower point in the market cycle. We know the market will come back in years to come and that we can add value to resell at a higher price,” said Exceed managing director Vaughan Hayne.
Leasing momentum
Developer Shayher Group, fund manager Alceon and mining magnate Gina Rinehart have all acquired Brisbane office buildings from Charter Hall in the past 12 months.
Since acquiring 119 Charlotte Street, the Fongs, through their private company, Samford Commercial, have leased the two vacant floors in the building to a national education tenant at $780 per sq m, whilst locking in ASX-listed NextEd which occupies level nine, on a new five-year lease.
The B-grade office tower has almost 8000 sq m of lettable space and 100 car parks.
In 2018, previous owner Uniting Financial Services – a development fund of The Uniting Church – removed aluminium composite cladding from its facade as a fire safety precaution as it undertook a refurbishment of the tower.
In its May report on the Brisbane CBD office market, Caden Research highlighted a pickup in the pace of leasing deals in early 2024 despite no overall improvement in the vacancy rate.
“A notable trend in early 2024 has been the leasing of space before the previous tenants vacate, with properties like 1 Eagle and 80 Ann Street seeing space go under offer before it is on-market,” Caden said.
The research firm also noted that for the first time in 2024, the B-grade office vacancy rate declined (down 0.17 per cent) with 5829 sq m of space leased and occupiers keen on fitted space.
