Quintessential’s $250m Brisbane office deal confirms valuation slump

Quintessential’s settlement following long negotiations with Brookfield – the fund manager’s interest in 240 Queen Street was first mooted over a year ago – provides further evidence of the widespread steep correction in office values that has occurred in Australia and globally following the pandemic.

Last week, ASX-listed Dexus and the Canada Pension Plan Investment Board sold out their joint half stake in Sydney’s 5 Martin Place for $310 million – a 24 per cent discount from the office building’s peak value.

In April, Mirvac, sold a half stake in 255 George Street in the Sydney CBD for $364 million at around a 17 per cent discount to its peak book value to Singapore’s Keppel REIT on a yield of around 6 per cent.

Quintessential is targeting a similar return at 240 Queen Street to be paid in monthly distributions. It will spend $31 million on refurbishment works, and to improve its ESG credentials.

Led by Shane Quinn, Quintessential has been one of the few investor groups buying up CBD office towers.

Last year, Quintessential paid $293.1 million for an 18-storey Sydney office tower at 1 Margaret Street, a 21 per cent discount to the valuation vendor Dexus placed on the building in June 2021.

Quintessential has secured the backing of its loyal investor base for its latest deal, raising $137 million in wholesale capital for the purchase of 240 Queen Street.

The fund manager’s thesis for buying office towers is based around securing them at or near the bottom of the market and in better performing markets such as Brisbane where vacancy rates are lower and A-Grade rents are still rising amid a flight to quality.

Buying below replacement cost, Mr Quinn said to The Australian Financial Review’s Chanticleer column in March, meant it could charge half the rent of a new office building, but still get the same return.

It is not the only one seeing opportunities in the CBD office market.

Sameer Chopra, head of research at CBRE, last month forecast Brisbane office rents would rise by 15 per cent this year.

“We are telling our clients that Brisbane office will be the best performing asset geography mix in Australia, better than residential, better than industrial,” he told a Real Estate Institute of Victoria event.

“It will actually be an office market that plants a flag on a hill.”

Quintessential is paying $7 million less than the $257 million the firm had priced 240 Queen Street in a deal flyer sent to investors five months ago.

Quintessential chief investment officer Andrew Borger said the Brisbane office market and south-east Queensland more broadly would benefit from investment in infrastructure and jobs growth in the lead up to the 2032 Olympics.

Offering almost 25,000 square metres of office space and 2700sq m of retail space, 240 Queen Street sold 97 per cent occupied with tenants that include Hall Chadwick Accountants, ASIC, Hall and Wilcox and co-working operator Christie Spaces. Retail tenants include a Commonwealth Bank branch on the ground floor.

JLL’s Paul Noonan, Seb Turnbull, Kate Low and Jack Sullivan alongside Justin Bond and Ben Schubert of Knight Frank negotiated the sale of 240 Queen Street on behalf of Brookfield.

While the national office vacancy rate remained at a near 30-year-high of just under 15 per cent in the first quarter of the year, a flight to quality has lifted occupancy rates in prime towers at the expense of B-grade buildings, according to a JLL report.