Investa sells half-share in Ark, warns of two-speed market

INVESTA PROPERTY GROUP has raised $115 million through the sale of a 50 per cent stake in the Ark building in North Sydney to Prudential Financial's real estate investment unit, Pramerica Real Estate Investors.

By InvestSMART · 10 Aug 2011

By InvestSMART ·
10 Aug 2011

Comments

Michael Cook, the group executive for commercial property investments at Investa, confirmed the sale of the interest in the building.

Investa, owned by US investment bank Morgan Stanley, has had the stake in the building for sale for some time as part of its strategy to develop assets then sell the exposure and use the cash for new projects. The remaining half will be held by Investa.

The sale comes as Investa consolidates its recent takeover of the management of the former ING Office Fund, which it will use to further expand its foothold into the national office market.

The head of research at Investa, Peter Carstairs, said recent office data from the Property Council of Australia indicated that high-quality assets remained in demand from tenants.

The latest PCA Office Market report for the six months to July 31 showed Sydney's vacancy rate had risen to 9.3 per cent from 8.3 per cent.

"Despite the apparent lacklustre result for Sydney's office markets, tenant demand for prime space remains twice the historic 10-year average and more than 70,000 square metres of absorption has been recorded among premium and A-grade assets," Mr Carstairs said.

But he warned the overall office sector was turning into a two-tiered leasing market.

"Tenant demand for premium and A-grade space has continued to drive the market for the first six months of 2011 with absorption of premium space averaging 35,000 square metres every six months, and A-grade space averaging 175,000 square metres over the last two years," he said.

"Secondary stock, however, reports negative absorption, creating a two-speed office market in many of our major cities including Sydney and Melbourne.

"Premium space is being absorbed at twice the historic average and A-grade space is being snapped up at a similar level - driving overall prime vacancy down to 6.2 per cent."

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What did Investa sell in North Sydney and for how much?

Investa Property Group sold a 50% stake in the Ark building in North Sydney to Pramerica Real Estate Investors (Prudential Financial’s real estate unit) for $115 million.

Who owns the remaining half of the Ark building after the sale?

Investa will continue to hold the remaining 50% interest in the Ark building following the sale to Pramerica.

Why did Investa sell half of the Ark building?

According to Investa, the sale fits its strategy of developing assets, then selling down exposure to recycle cash into new projects — a capital-management approach the group is using while expanding its office footprint.

How does the Ark sale tie into Investa’s takeover of the former ING Office Fund?

The sale comes as Investa consolidates its recent takeover of management of the former ING Office Fund; Investa says it will use that expanded platform to grow its presence across the national office market.

What does the article mean by a 'two-speed' or 'two-tier' office market?

Investa’s head of research, Peter Carstairs, describes a two-speed market where demand is strong for premium and A-grade office space—showing positive absorption—while secondary office stock is experiencing negative absorption, creating different performance bands within the market.

What are the latest Sydney office vacancy and prime vacancy figures mentioned in the article?

The Property Council of Australia report cited in the article showed Sydney’s overall office vacancy rose to 9.3% (from 8.3%), while overall prime vacancy has been driven down to about 6.2% due to strong take-up of premium and A-grade space.

How strong is tenant demand for premium and A-grade office space right now?

Peter Carstairs said tenant demand for prime space remains about twice the historic 10-year average. The article notes more than 70,000 square metres of absorption among premium and A-grade assets, with premium space averaging roughly 35,000 sqm every six months and A-grade averaging about 175,000 sqm over the last two years.

What should everyday investors watch in the office property market after this sale?

Investors should monitor trends in vacancy rates and absorption for premium/A-grade versus secondary office stock, and track how asset-sales and portfolio moves by managers like Investa (and buyers such as Pramerica) affect liquidity and pricing in prime office assets.