ADIA looks to sell Darling Quarter stake as city office heats up

Sydney’s harbourside Darling Quarter complex.

Commonwealth Bank took a 60,000sq m lease in Sydney’s harbourside Darling Quarter complex.

Middle Eastern group the Abu Dhabi Invest Authority is looking to lighten its Australian portfolio with the sale of a half-stake in the landmark $1bn Darling Quarter complex in Sydney.

The sovereign fund backed the development of the Commonwealth Bank-occupied complex in 2008. It has risen in value as the bank made Darling Harbour one of its prime sites in Sydney.

The bank also occupies the nearby Darling Square complex, which is co-owned by Aware Super, as well as a tower in the Darling Park complex.

The Commonwealth Bank has diversified its exposure from the area by also shifting into a new complex in the Mirvac-developed South Eveleigh precinct, but it remains committed for the long term.

Darling Quarter was developed on the former Segaworld site and the area has since been transformed by multiple projects, including Greaton’s $730m The Ribbon project.

The twin buildings, known as Commonwealth Bank Place, remain one of the main developments in the Darling Harbour precinct and the bank has a 60,000sq m lease.

The former ­Sydney Harbour Foreshore Authority was the lessor of the land on which Lendlease developed the two prime eight-storey office buildings.

They are co-owned by Lendlease’s Australian Prime Property Fund Commercial and the Middle Eastern sovereign fund.

The pair have close ties. ADIA and APPF are already partners in a Sydney tower at 1 O’Connell Street and some surrounding properties, which could become the site of a new skyscraper in coming years.

It is not known whether the local vehicle would tip its interest in the complex into any offer by ADIA but doing so would make it one of the largest office offerings since the pandemic struck.

Most building sales have involved partial interests where the co-owners have acquired them rather than them trading on the open market.

Lendlease Funds Management has a 99-year leasehold interest, which expires in 2110, in the property, and the ground lease is owned separately. The company declined to comment.

In 2016 the NSW government reaped $192m from selling part of the ground lease interest in the harbourside complex to British ­insurer Rothesay.

The Darling Quarter deal, over the rights to the ground lease rental income for 30 years, was the first sale in a series of planned disposals of non-core commercial assets formerly held by the SHFA.

Rights to the Darling Quarter ground lease rental income revert to the government after 30 years and it kept the freehold of the site.

Offices are running hot and just last week Mirvac stamped its authority on Sydney’s office market by taking full control of the EY Centre at Sydney’s Circular Quay in a deal valuing the building at $1.15bn.

The purchase, backed by British funds manager M&G Real Estate, showed the office investment market is travelling strongly. Investors believe that leasing will bounce back in the wake of the city’s lockdown and for an extended period afterwards.

That came just after Dexus secured the $1.4bn Atlassian tower at a technology precinct next to Central Station, and shows that top landlords are bullish about a recovery in prime offices.