This article is from the Australian Property Journal archive
JAPANESE property developer Mitsubishi Estate Asia (MEA) has put its 30% share of Sydney’s tallest office building – the $2 billion Salesforce Tower – to the market, in a huge test of the flight-to-quality thematic in a sector that has seen assets trade on heavy discounts amid structural headwinds and high interest rates.
Office building sales froze in the wake of the widespread adoption of flexible and remote working during the pandemic, which is still creating uncertainty over office space requirements. Liquidity is only just returning to the market, and major assets, such as Mirvac’s 40 Miller Street in North Sydney and 367 Collins Street in Melbourne, have sold at 20% discounts to peak book values.
Australian Property Journal reported last week that Dexus is looking to further reduce its exposure in the underperforming sector, putting $100 million of Melbourne offices on the market, which at their peak were valued at over $160 million.
Employees are demanding more perks and newer, greener digs in being enticed to the workplace, and the office sector has seen premium-grade office space attract the lion’s share of tenants in recent years. Salesforce Tower is Sydney’s most recently-completed premium-grade office building, and features premium end-of trip facilities, a new community building with a public bike hub, a public plaza, and food and beverage retailers, including the landmark Jacksons on George bar and bistro. A sale could crystallise where values currently sit.
Co-owners of the Circular Quay tower are Lendlease, which holds a 20% stake through its APPF Commercial and is the asset’s manager, and Ping An, which holds the remaining 50%. Ping An took that stake to the market early last year but baulked at offers that came in 10% short of expectations.
Salesforce Tower itself was valued at around $2.2 billion when Lendlease bought into the asset two years ago.
CBRE’s Flint Davidson and Stuart McCann have been appointed to the expressions of interest campaign for MEA’s share of 180 George Street.
Davidson told Australian Property Journal that interest in Salesforce Tower is “probably more likely to be international money, because it’s a bigger ticket size”.
“Generally speaking, we find the bigger assets have got international money more likely to be the buyers. There are some Aussie super funds that have started to get active again, but I think it’s more likely to be the big internationals that are going to be active on this.
“The reality is the market has moved to – you hear that term “flight-to-quality” quite a bit – but the market has definitely shifted to best-quality assets in the leasing market. Leasing data supports that the best assets are performing really well. The fact that this is the newest asset in Sydney CBD will be attractive to international money, knowing that this sector of the market is performing really well.”
The precinct is witnessing more than $10 billion in private investment, including the Sydney Waldorf Astoria Hotel and high-end luxury tower One Circular Quay – which MEA and Lendlease are also owners of – with both these projects due to complete in 2026.
On the sell-side, the divestment is part of the Japanese giant’s global capital recycling strategy and will allow the group to reinvest in further growth projects across Australia.
“Selling our stake in Salesforce Tower signifies an important milestone for MEA, marking our first divestment in Australia,” MEA’s head of Australia, Yuzo Nishiyama said.
“This divestment bolsters MEA’s strategic expansion in Australia, where we continue to participate in more development projects across our real estate sectors of focus, including living, office and industrial.”
Last week, it made its first for into the country’s industrial sector, partnering with ESR to develop a $175 million, 70,000 sqm estate in south-east Melbourne’s Pakenham.
“Our conviction for premium grade office development opportunities in the superior locations remains very high as evidenced by our Parkline Place over-station development in the Sydney CBD, which will complete in September this year.”
