This article is from the Australian Property Journal archive
IN a sign that valuations have adjusted and are aligning with market expectations, investors have started their early Christmas shopping, snapping up $800 million worth of offices across the country.
Hot on the heels of Brookfield’s half-stake sale in Sydney office tower for $460 million last month, US investment giant has acquired 10-20 Bond Street in Sydney for $580 million.
The acquisition is BGO’s first direct investment in Australia, acquiring the building from joint owners Mirvac and Morgan Stanley.
The sale price is in line with the valuation of the asset. Mirvac’s 50% was valued by its directors at $291.3 million on a cap rate of 6.25% as 30 June 2023.
However, the sale price is below the peak value of $697.2 million recorded in 30 June 2022.
The A grade office has been refurbished with a new lobby and end of trip facility boasting a 4 Star Green Star design rating, and a 5.5 Star NABERS Energy rating.
The property comprises 38,318 sqm and 150 car parking space with major tenants including ClearView Administration Services and the Australian Energy Market Operator (AEMO).
The sale to BGO highlights the return of offshore capital in recent times to Sydney’s office market.
Last month a joint venture between Singapore-listed companies UOL Group and Singapore Land Group (SingLand) bought Brookfield’s half-stake in 388 George Street for $460 million on a yield of 6.2%.
A month prior, German investment powerhouse Real I.S. Group snapped up 8 Windmill Street, Millers Point for $47.75 million from Melbourne-based property investment manager Marks Henderson.
At the same time, privately-held US Connecticut-based firm Proprium Capital Partners is running the ruler over 20 Bridge Street, to buy it from Hong Kong toy billionaire Francis Choi for around $270 million.
Choi’s Early Light International is offloading 20 Bridge Street, which will soon be vacated by the ASX, for below what he paid. Choi purchased the building from Malaysian pension fund Kumpulan Wang Persaraan in 2017 for around $330 million and $350 million.
Meanwhile in Brisbane, Aware Super has acquired 145 Ann Street for $200 million. The 27-storey office building spans 27,555 sqm and is currently 84% occupied with a weighted average lease expiry (WALE) of 3.5 years by income. The property, which features 103 car spaces, is anchored by GHD Services.
According to sources, the building’s book value was $217.6 million in June 2024, reflecting a yield of 6.52% and a capitalisation rate of 7.5%.
Aware Super acquired the property from major office landlord Dexus and the Canada Pension Plan Investment Board.
These latest transactions come as the buyer-seller pricing gap for Sydney offices has reduced to -6.7%, down from -21.6% at the end of 2023, according to the Australia Capital Trends report from MSCI.
Ben Martin-Henry, MSCI’s head of Pacific real estate research, said it is a sign that valuation adjustments are aligning with market expectations.
“We’re seeing a lot more transactions in the office sector, and that’s not necessarily because of stability in the interest rate environment. It seems to be that a lot of investors are trying to get out of the office sector, or at least get them off their books in order to recycle capital into something else, and what we’re seeing is other investors take advantage of these discounts that are on offer,” he told Australian Property Journal.
“We’ve certainly seen that with some of the larger transactions in the office sector, such as 5 Martin Place and 52 Martin Place in Sydney, 367 Collins down in Melbourne, that they have gone at significant discounts, and I think that’s what’s really driving the office sector at the moment.”
Martin-Henry suggested Sydney’s office sector could be one to watch over the coming year. Sydney offices experienced quarterly yield compression of 4 basis points.
The transaction is part of Dexus’ strategy to diversify its portfolio, as its heavy exposure in the office sector dragged the company to a $1.58 billion loss result in FY24.
Dexus recently announced it was teaming up with Marquette Properties to repurpose a B-grade office tower in Brisbane’s CBD into a $500 million purpose-built student accommodation facility (PBSA) with 1,200 beds.
Dexus is also selling offices Melbourne.
Aware’s acquisition is Brisbane’s second major office deal in recent weeks, following Warren Ebert’s Sentinel Property Group acquiring RACQ House building for $72 million – on a yield of 9.34% and significantly below the replacement cost of $152 million.
CRE investment recovery
Foreign investors are making a comeback in Australia. The latest FIRB data shows commercial investment proposals approved lifted quarter-on-quarter from 271 to 340, and a value rising from $26.4 billion to $58.7 billion.
The United States was the largest source for approved commercial investment proposals by value in the June quarter (at $21.9 billion), followed by Japan ($9.5 billion), Germany ($5.4 billion), France ($4.1 billion) and Singapore ($2.3 billion). The value of commercial real estate investment proposals for FY24 came in at $35.8 billion, falling from $50.2 billion in FY23 and $63.3 billion in FY22.
These transactions highlight the recovery in office market with volumes up 24%. Investment volumes for Q3 were highest in Sydney, at $2.2 billion, followed by Melbourne at $698 million and Brisbane at $580 million.
Other major transactions include billionaire Francis Choi’s $196.4 million sale of 1 Castlereagh Street in the heart of Sydney’s CBD; Mitsui Fudosan’s acquisition of a circa 66% stake in 55 Pitt Street, Sydney for $1.3 billion; Keppel REIT buying a 50% stake in 255 George Street; Sydney for $363.8 million and PAG purchasing 367 Collins Street, Melbourne for $301 million. Mirvac divested the 40 Miller Street, North Sydney office building to Barings for $140 million, and 367 Collins Street in Melbourne for $345 million, with both deals struck at a 20% discount to peak book values.
Meanwhile, Cbus Property is spending $310 million to acquire a 50% share of 5 Martin Place in the Sydney CBD, as reported by Australian Property Journal. That tower had previously shown a valuation of $405 million two years ago.
According to the latest Australia Capital Trends report from MSCI, transaction volumes reached $8.2 billion in the September quarter, an 11% increase compared the same period in 2023. Year-to-date figures are up 12% compared to the same period in 2023, totalling $23.8 billion, suggesting that 2024 is likely to surpass last year’s results, especially given nearly $2.9 billion of transactions are pending settlement.
Transaction Volumes by Sector
| Q3’24 Volume | YTD’24 Volume | ||||
| $b | YOY | $b | YOY | ||
| Office | 2.8 | 61% | 7.2 | 48% | |
| Industrial | 2.6 | -2% | 7.7 | 16% | |
| Retail | 2.1 | 24% | 6.9 | 43% | |
| All Commercial | 7.5 | 23% | 21.8 | 34% | |
| Hotel | 0.3 | -38% | 1.0 | -51% | |
| Apartment | 0.0 | -96% | 0.5 | -78% | |
| Seniors Housing & Care | 0.3 | 148% | 0.5 | 22% | |
| Income Properties | 8.2 | 11% | 23.8 | 12% | |
| Dev Site | 0.9 | -59% | 5.9 | 13% | |
| Grand Total | 9.1 | -5% | 29.8 | 12% | |
While the numbers suggest positive momentum, volumes remain 30% below the five-year average, underscoring that a full recovery is still in progress.
A recent report by Dexus forecast CRE transactions will reach $44 billion on a pro-rata basis, or around 11% above 2023 levels.
The average size of transactions across commercial markets are up 60% year-to-date on 2023 and the proportion of institutional buyers is up from 34% to 64%.
“Real asset investment markets passed a watershed moment in September when the US Federal Reserve cut its cash rate,” said Peter Studley, head of research at Dexus.
