Lowys swoop on Domain’s Sydney HQ in $230m bargain deal
Assembly Funds Management, backed by the Rich Lister Lowy family, has teamed up with Wentworth Capital to buy Domain’s Sydney headquarters at 100 Harris Street for about $230 million.
In a sign of just how hard the office sector has been hammered, the Pyrmont building was sold by its owner Dexus for less than what the ASX-listed platform paid seven years ago, when it doled out $327.5 million.
It’s the first foray into the local office market for the Lowy-backed platform, which was established after Frank Lowy sold out of the global Westfield shopping centre empire he co-founded.
Yet, the deal also represents a boost of confidence in the office sector, where transactions are finally picking up again after two years of turmoil caused by the global surge in interest rates and the rise of flexible work.
The deal was struck in line with the Pyrmont building’s book value, a hopeful signal that the fall in office values is nearly over. The sale price represents a near 33 per cent discount of the building’s peak value of $343 million in June 2021.
“We view this acquisition as a unique opportunity to strategically allocate to Sydney’s office sector at an interesting stage in the cycle,” said Tim Meurer, Assembly’s chief investment officer.
“Acquiring a building of this quality, in a growing precinct, underpinned by committed infrastructure investment, presents as a compelling investment.”
Dexus has been informally trying to offload the Pyrmont office building – it stands across from the Star Casino – since as early as June. It is part of a strategy to sell off around $2 billion worth of assets – primarily offices – over the next three years as Dexus diversifies its portfolio and bolsters its funds management business.
That divestment strategy is gaining momentum, with the Sydney sale being the second major exit for Dexus this month, after it sold 145 Ann Street in Brisbane’s CBD for $213.9 million to Aware Super.
The deal for 100 Harris Street was struck on a capitalisation rate of about 8 per cent to 8.5 per cent. That metric is similar to an investment yield and is the industry’s common valuation benchmark, allowing landlords, investors and would-be buyers to compare returns for individual office towers.
By contrast, the cap rate for the best office towers in Sydney’s CBD precinct is running at around 6 per cent. The cap rate applied to the Pyrmont building, which is outside the central CBD, is a little higher than for other recent transactions such as 5 Martin Place and 40 Miller Street in Sydney, and 367 Collins Street in Melbourne.
Dexus had acquired 100 Harris Street as part of a series of commercial property deals worth over $1 billion as it banks on rising rents for office spaces.
McVay Real Estate’s Rob Sewell, who brokered the sale of 100 Harris Street, said the Pyrmont deal – combined with the evidence from other recent transactions – was an indication that office values had bottomed and could even start rising next year.
“I think we’re going to start to see values improving, certainly in high-quality office complexes in Sydney, as we’re seeing good transactional depth. Coming into next year, maybe values start to improve,” Mr Sewell said.
Long-term play
Originally, a wool store dating back to the 1890s, the heritage property comprises 26,879 square metres of A-grade office space over six levels. It has been the headquarters for Domain since 2015 after it was refurbished, and also houses one of WeWork’s co-working spaces.
The building is very close to the in-progress Pyrmont Metro station which, when it opens, will allow workers in the Harris St offices to travel into the CBD within five minutes.
As well the new Pyrmont metro, the area is also experiencing a major burst of development, with projects such as Mirvac’s Harbourside luxury apartment tower and the overhaul of the Sydney Fish Market.
