$440 million in asset sales kick-start new year

Asset sales have dominated the commercial property sector in the past year, with more than $440 million in two transactions starting the new financial year.

Under a highly anticipated deal, the unlisted AMP Capital Wholesale Office Fund has paid $317 million for a half-share of the 200 George Street, Sydney office tower from Mirvac.

AMP was the original owner of the site but sold it to Mirvac in 2003. As part of that deal, AMP kept an option for the first right to buy 50 per cent of any future office tower development. Mirvac is in the final stages of demolition of the site and it and AMP will split the development costs.

AMP Capital's head of property funds management, Chris Judd, said the planned premium grade 37-storey office tower has been substantially pre-let to Ernst & Young for 10 years from completion.

Mr Judd said under the agreement, Mirvac would provide AMP Capital a rent guarantee over any remaining unleased space at completion for a term of four years, significantly derisking the investment proposition for AMP Capital investors.

"The acquisition is consistent with our strategy to remain focused on core, well-located office towers and bringing some newer assets into the fund to increase the quality of the portfolio and deliver our investors strong risk-adjusted returns over the long-term," Mr Judd said.

Mirvac chief executive Susan Lloyd-Hurwitz said the deal would extend Mirvac's exposure to Sydney's premium-grade office assets.

Investa Office Fund was also active, paying $124.9 million for 99 Walker Street, North Sydney, from GE Capital. The asset was part of a larger portfolio that GE Capital has been looking to sell since late last year.

The fund manager for the listed Investa Office Fund, Toby Phelps, said the 17,200 sq m A-grade office building would be bought using existing debt and would generate a 7.9 per cent yield on cost. Mr Phelps said the asset would be accretive to the 2014 earnings, but the overall group gearing would remain at a conservative 29 per cent.

"We view North Sydney as a solid investment market, with stable leasing, as it's an attractive alternative to the Sydney central business district," Mr Phelps said.

"Upon completion, we plan to redevelop the 1000 sq m ground floor retail but the 21 levels of office accommodation is leased to seven tenants including GE Capital Finance and AAMI and has a weighted average lease expiry of 5.2 years, with over 40 per cent of income contracted beyond 2021."

The sales come as the 2013 financial year ended on a solid note with new CBRE data highlighting that June quarter 2013 sales were up 24 per cent on the prior corresponding period.

The report says sales for the 2012-13 financial year totalled $16 billion, a rise of 12 per cent on 2011-12. The data takes into account all office, retail and industrial sales valued at over $5 million.

The national director, capital markets at CBRE, Josh Cullen, said domestic investors were driving activity higher, with transactions up 30 per cent in the 2012-13 financial year compared with the previous corresponding period.

Mr Cullen said he expected the Australian real estate investment trusts to be active in the coming year.

According to James Parry, the managing director of capital markets at Knight Frank, Brisbane CBD led the way as the most invested city over the past year, jumping from 16 per cent to 30 per cent of all CBD purchases, closely followed by Sydney (28 per cent) and Melbourne (22 per cent).

Amid the asset deals, Commonwealth Bank's property team said while they were not bullish on near-term rental growth, "We note there have been a number of positive data points that suggest office demand is not materially worsening and that market expectations could be too bearish."

In contrast ANZ's real estate division warned recently that the commercial sector was under increasing pressure from weak demand and flat rental growth.