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City investors reach for sky with deals worth $650m

MORE than $650 million of prime Sydney office skyscrapers have changed hands in the past two weeks as investors look to get a foothold in the market amid forecasts of strong rent rises.

MORE than $650 million of prime Sydney office skyscrapers have changed hands in the past two weeks as investors look to get a foothold in the market amid forecasts of strong rent rises.

Yesterday, the private investment group Memocorp added to its portfolio with the $395 million purchase of 259 George Street, anchored by the bank and insurance group Suncorp Metway, from the Commonwealth Property Office Fund (CPA).

Memocorp, backed by the Singapore magnate Mr Tay Tee Peng, already owns the Wynyard Green tower at 11 York Street and the office block at 1 Oxford Street.

The sale adds to the acquisition two weeks ago of a half share in Mirvac's Goodsell site at 8 Chifley Square by the Singapore-based K-REIT. NCR House in North Sydney was recently bought by the Australian Catholic University, and Abacus Property Group snapped up 309 George Street.

In the first half of this year the sale tally was $200 million, indicating that, despite the spectre of higher interest rates and a slowing economy, office towers are now being keenly sought.

The impetus for the rush of deals has been the forecast reduction in office vacancies across Sydney's central business district. All agents have indicated that, owing to the lack of new buildings and a rise in employment, vacancy rates could be as low as 6per cent [from the present 7.8per cent] by the end of this year.

CBRE's executive director of global research and consulting, Kevin Stanley, said that, while there was some scope for a slight compression in investment yields, income growth would be the key value driver in the recovery.

"It has taken longer than we may have initially expected but prime rents are increasing and incentives are starting to move down and, combined, [these] will provide a super boost to returns over the next 12 to 18 months," he said.

Under the terms of the 259 George Street sale, Memocorp paid a 15.3per cent premium on the latest independent valuation of the property, made on June 30.

Charles Moore, the fund manager of CPA, said the proceeds would be used to retire debt. He said the fund was also looking at options to boost earnings, such as reinvesting some of the cash in developments or potential acquisitions. CBRE's senior director of institutional investment properties, Josh Cullen, who, with Rob Sewell, advised on the sale, said the transaction was a strong result and achieved the goals of both parties.

"Colonial achieved a strong result relative to the building's current book value, while the purchaser has been able to secure a 100per cent freehold property in the tightly held Sydney commercial market," Mr Cullen said.

"The strength of the offer reflects the buyer's confidence in the tightening market fundamentals as the Sydney leasing market continues to strengthen."


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