Office avalanche: $6b of towers on the market
Australia’s prime office market is peaking after a slow 18 months through COVID-19 with investors now bidding on more than $6 billion worth of buildings as vendors attempt to cash in on strong interest for quality property.
The latest asset to land is the biggest of all – 100 per cent of Darling Quarter in Sydney, which is being sold by co-owners Lendlease and the Abu Dhabi Investment Authority with a price guide of up to $1.2 billion through Flint Davidson, James Parry and Stuart McCann of CBRE.
Darling Quarter is leased to the Commonwealth Bank for the next 14 years with a net lettable area of 58,000 square metres.
It joins a slew of other office assets including five properties listed by Dexus, the sector’s largest landlord, which is selling four buildings in Sydney and another in Brisbane that have a combined book value of $1.75 billion.
Oxford Investa Property Partners is also selling down up to a 50 per cent interest in a property portfolio it has called Investa Gateway Offices, valued at $2.3 billion. It features stakes in four Sydney CBD buildings and one in Collins Street, Melbourne.
Mirvac, which in late July partnered with M&G Real Estate to buy the 50 per cent of 200 George Street in Sydney it did not already own for $575 million, is also getting in on the action, recently putting the 32-storey office tower Allendale Square in Perth on the market.
Almost 20 significant office buildings are on the market in one form or another, with numbers steadily building this financial year, increasing over the past few weeks as the exit from COVID-19 lockdowns becomes clearer.
Competition has been most intense for prime assets such as 200 George Street, sold on a capitalisation rate of 4.1 per cent, and the Woolworths headquarters in Bella Vista, which is expected to be sold for $450 million at a cap rate of just over 5 per cent.
Despite the volume of properties hitting the market, analysts expect demand from domestic and international investors to stay strong for the right assets.
Josh Cullen from Cushman & Wakefield, who is on a number of the deals including the Dexus Sydney Prime portfolio, said the weight of capital chasing returns would ensure demand woulf be maintained.
Sholto Maconochie, head of real estate at Jeffries Australia, added: “I definitely think demand will hold up because bond rates remain low, which is good for real estate.
“Investors have a five or 10-year investment horizon on these assets and, as I say, one man’s trash is another man’s treasure.
“Generally office has been tough globally, but rent collection in Australia has been circa 95 per cent and I personally think office will bounce back quite strongly.”
‘Decisions need to be made’
Benjamin Martin-Henry from Real Capital Analytics said annual office sales were well down during the 2020-21 financial year at $16 billion, almost half the $29.6 billion in sales in the 2018-19 financial year.
“I think people are coming to terms with what this pandemic is really about. Last year there was so much uncertainty because nobody knew what was really going on and investment decisions were put on hold,” he said.
“Eventually investment decisions just need to be made and now people are a bit more comfortable with what’s going to happen over the next couple of years they are being acted on.”
As for the rationale to sell, he said: “Owners may have made as much out of them as they think they can and now is probably a good time to sell down.
“Of course, the flipside is that some people may be thinking ‘I don’t want to own office assets any more because there is so much workplace uncertainty and lease risk, so I’ll get out now’.”
