This article is from the Australian Property Journal archive
ONE of the first major Sydney CBD building transactions since the outbreak of COVID-19 has landed, with Dexus offloading its 45 Clarence St tower for $530 million to Singaporean group Peakstone as the country’s largest office landlord reported a softening in the value of its office portfolio.
Dexus experienced a circa 1.5% decline in values on its office properties as a result of the weakened forecasts for rental growth, downtime and incentives over the next 12 months. The weighted average capitalisation rate of the office portfolio tightened circa one basis point to 4.97%.
The sale price of 45 Clarence St came in above the tower’s most recent book value of $507 million.
Built in 1990, the 28 level, A grade building in the western corridor of the city has 32,000 sqm of office space and is fully leased, with a weighted average lease expiry of 3.3 years. Qube Holdings is the major tenant. The sale price represents a yield of about 5%.
Contracts were exchanged following an off market unsolicited offer from Peakstone, related to Chinese group Zone Q, and is subject FIRB approval. Zone Q owns the adjoining B grade building at 55 Clarence St.
CI Australia has forecast both higher vacancies and incentives imposed on the office market by the coronavirus could slash up to 15% off the value of Sydney CBD towers, which may not be recouped for five years. However, the prime investment market will remain relatively stable.
Sydney’s CBD finished 2019 as the top destination for cross border activity within the Asia Pacific region, but the volume of commercial property transactions across Australia tumbled by 47% to $2.16 billion in annual terms through the March quarter, while the number of deals fell by a similar measure. This was punctuated by the collapse of a $950 million sale of the 39 Martin Pl tower from Macquarie to ISPT.
Telstra is reportedly close to divesting its 16 storey Pitt St tower for a figure between $250 million and $300 million.
“This transaction reinforces the resilience of prime quality office asset values in the Sydney CBD and enables us to recycle capital into higher returning opportunities that we expect will become more prevalent over the coming period,” Dexus chief executive officer Darren Steinberg said.
Dexus announced a $195 million uplift across its entire portfolio, a 1.2% increase, resulting from a revaluation that 107 of its 118 assets. That included 42 office properties and 65 industrial properties.
The industrial portfolio experienced a circa 0.7% increase on prior book values and the weighted average capitalisation rate tightened circa 12 basis points to 5.66% over six months.
Weighted average capitalisation rate across the total portfolio tightened circa four basis points over the past six months from 5.09% to circa 5.05%. Total portfolio valuation increase in the six months to the end of 2019 was $656 million.
“While the operating environment remains uncertain, over the next six to 12 months we expect quality office and industrial asset values to remain resilient with pricing supported by an attractive yield spread over bonds and lower for longer interest rate environment, with some impact from a softer outlook for rental growth, downtime and incentives,” Steinberg said.
“Investment demand for quality assets is expected to remain positive, with Australia well positioned for a recovery in foreign investment due to efforts relating to the control of the COVID-19 pandemic ahead of other countries and our longer term economic growth prospects.”
Dexus has exchanged or completed over $800 million of property divestments across the group during the 2020 financial year. The net sale proceeds from 45 Clarence St will initially be used to repay debt.
