This article is from the Australian Property Journal archive
ADELAIDE’S office market, bolstered by $130 billion of infrastructure and defence projects, is attracting big players with Centuria Capital splashing $127 million for the 80 Flinders St office building.
Centuria will spin the asset into a new unlisted fund which is launching next month with forecast FY20 and FY21 distribution yields of 6.50% and 6.60% respectively.
Centuria joint CEO Jason Huljich said the purchase expands upon $0.9 billion of group acquisitions in FY19.
“The group’s latest acquisition represents another example of our team’s ability to selectively identify quality real estate opportunities in a highly competitive environment. As a market, Adelaide is continuing to transform through a strong pipeline of approximately $130 billion of infrastructure and defence projects, as well as offering attractive fundamentals relative to other core CBD markets.
“We are pleased to be commencing FY20 with a compelling acquisition that builds on $0.9 billion of acquisitions achieved across the group in FY19 and offering another asset to our deep unlisted distribution network. In the prevailing low interest rate environment, we continue to expect direct real estate assets to generate strong demand from investors looking for quality investment opportunities while displaying attractive relative yield.” Huljich said.
Constructed in 2006 and refurbished in 2019, 80 Flinders St consists of the SGIC/CGU Building, an eight-storey building with ground level retail space providing a net lettable area of 12,000 sqm, and an eight-level car park with 700 spaces. It is fully leased with 95% of gross income underpinned by multinational and ASX listed companies including CGU Insurance, BAE Systems Australia and IAG.
The asset was sold by Lendlease’s Australian Prime Property Fund Commercial, which acquired the building as part of the Flinders Link portfolio, comprising 60 Flinders St, 80 Flinders St and the car park, from SachsenFonds in 2014 for $153.2 million. The fund also bought the 60 Light Square office building from the German fund, taking the total purchase to $175.2 million.
SachsenFonds bought the Flinders Link development in 2006 for $156 million from the Hindmarsh Group, Kambitsis Group and PT Building Services, and separately acquired 60 Light Square from the Tritan Corporation for $32 million.
In August last year APPF Commercial offloaded 60 Flinders St, also known as the Santos Centre, to Melbourne petrol tycoon Nikos Andrianakos for more than $100 million.
The deal follows Singapore’s Suntec REIT splashing $148.3 million for the Allianz Centre, and a private Singaporean investor quickly moving to take advantage of the heightened interest in the city by listing the 100 Waymouth St office building.
Charter Hall picked up the 15-level, 12,410 sqm tower at 121 King William St in May for $82.25 million from US giant Blackstone.
Simon Hickin, m3property director, said investor interest is “definitely on the rise” in Adelaide, in part due to some buyers having been priced out of the much tighter eastern seaboard markets.
“You can still pick up a building in Adelaide for over 6% and that’s a pretty attractive return versus the circa 5% on offer in Melbourne and the 4.4% to 5% range in Sydney.”
The valuation and advisory firm’s Australian Office Insight: Winter 2019 report found market yield at March 2019 ranged between 6% and 7% for prime stock and 7.5% and 9% for secondary assets.
While 2019 overall has been relatively slow to date, Adelaide witnessed record-breaking sales volumes over 2018 according to m3property, with falling vacancy and the abolishment of stamp duty also factors. Circa $886.37 million worth of investment transactions of $5 million and above occurred last year, the highest level in more than a decade.
“The third and final cut to fully abolish stamp duty on commercial property transactions has made a positive impact on investment demand and is likely to continue to give South Australia a competitive advantage over other states,” national director, research, Jennifer Williams said.
“Falling vacancy, attractive yields, and rental growth will add further to an increasingly attractive mix of investment credentials over the short to medium term,” Williams said.
The report forecast a significant 18% fall in the prime vacancy rate, from 14.2% to 11.6% by late 2021, with yields remaining the most attractive of the mainland capitals until 2022, and annual average prime face rental growth to June 2022 would be second only to Melbourne.
Late last year, Chris Lock’s IPG and Wingate purchasing the 20-storey 77 Grenfell Street tower for $103.5 million, shortly after Melbourne-based Quintessential Equity bought 431 King William St for $43.1 million.
Also among key deals in 2018 were Melbourne petrol tycoon Nikos Andrianakos paying $100 million for the Santos Centre, following Charter Hall funds trading a 50% stake in Adelaide’s largest office building, the Australian Tax Office’s headquarters, for $135 million, and Centuria and Lederer Group paying $184.6 million for the Bendigo Bank headquarters at 80 Grenfell St.
CBRE’s Ian Thomas, Alistair Laycock, James Parry and Marc Giuffrida and Knight Frank’s Guy Bennett, Rory Dyus, Paul Roberts and Neil Brooks handled 80 Flinders St sale.
