Investors are circling the $300 million-plus office tower at 260 Elizabeth Street, known as Centennial Plaza, which is being sold by Investa Property Group.
An expressions-of-interest campaign, run by Colliers International, has closed and a number of buyers, both overseas and domestic, are said to have shown interest. Given the lack of supply in the Sydney market for fully-leased, high green star-rated sites, prospective buyers range from overseas funds to cashed-up Australian real estate investment trusts.
Likely contenders include domestic REITS such as Abacus and Cromwell as well as the super funds, and Chinese investors including Bright Ruby.
Buyers are also said to be getting closer to a decision on GE Capital's long-running asset sale and taking a serious look at the $300 million NSW government office portfolio.
However, as yet no sales have been completed.
Agents attribute the slow market to a combination of new buyers taking their time with due diligence and vendors holding out for higher values.
According to Deutsche Bank analysts, given the strong performance of the AREITs, there remains plenty of interest in the sector. However, as the trusts surpass their net tangible asset level, it is getting tougher to find value - particularly from the AREITS.
"While the AREITs are no longer as cheap as they were, US investors are likely ongoing buyers as they believe they don't look too expensive," the Deutsche analysts said.
"The US clients see the AREITs as providing good yield in a reasonable economy and stable financial system, and from a fundamental standpoint the real estate spread remains especially wide, with the expectation that capitalisation rate compression is still to come." There is also supportive analysis showing Australian domestic fund managers remain significantly underweight in AREITs, with the possibility of further capital inflow into the sector.
At present, the allocation to AREITS is about 8 per cent but is forecast to rise to more than 10 per cent as managers look for higher-yielding sectors at a time when cash rates are low.
However, Deutsche Bank issued a cautionary note, saying that although strong demand for office assets and the likely resultant capitalisation rate compression provides a positive backdrop for the office stocks, this needs to be weighed against weak underlying occupier market conditions.
"Post-recent price moves, office-focused REITS appear stretched, given a weak outlook for rental growth. Our revised forecasts show average 2012-16 net effective rent growth of negative 1.9 per cent per annum for Sydney and a negative 2.5 per cent per annum for Melbourne," the analysts said.
"Office AREIT relative performance has in the past tracked net effective rent growth, suggesting underperformance from here."