Investors punt that middle office market will recover from COVID

In a sign of market confidence Sydney-based funds manager Marprop Real Estate Partners has swooped on a half stake in an office building near Wynyard station in a $140 million deal.

The play, backed by offshore money, shows that strong flows of capital are still chasing office buildings as expectations grow of a return to work as vaccines are rolled out and Australian commercial property rates attractively on a global scale.

The move by Marprop will see it buy the interest in the complex at 60 Carrington Street from Brookfield and is one of the first signs of activity in the middle market of city office towers.

The normally healthy trade in these buildings went into decline when the pandemic struck but is now getting busy.

Marprop’s purchase shows sharp metrics close to where the building would have traded before the crisis and is a sign savvy players are looking through an expected rise in office vacancy this year to a recovery.

Brookfield was an early mover in the precinct that has since drawn other developers including John Holland. It capitalised on the lift in the area from its own $2 billion Wynyard Place development that is coming online next year.

Brookfield earlier sold interests in the two properties surrounding the landmark project, with half stakes in the towers at 60 and 50 Carrington Street sold to global insurance and investment company Swiss Re.

These are now about to hit the block as part of a broader $1 billion portfolio that the company is bringing to market.

But the latest sale, via Steve Kearney, Josh Cullen and Mark Hansen of Cushman & Wakefield, shows that the run of top end deals is now spreading more widely.

Stakes in buildings including Governor Phillip and Governor Macquarie Towers traded last month when Lendlease’s Australian Prime Property Fund Commercial snapped up an additional 25% interest in the $2.4 billion complex in the CBD. China’s sovereign wealth fund also bought a half interest in Grosvenor Place in a $925 million play.

“With a number of premium assets trading in the second half of 2020, the next wave of capital is now looking at high quality secondary assets that have a stabilised income profile and a differentiated story particularly with respect to infrastructure investment,” Mr Kearney said.

The 18-level complex at 60 Carrington St has offices over 16 levels. The 14,610sqm B-grade office building is considered a prize as it benefits from the broader overhaul of the mid-town precinct of Sydney’s CBD.

The deal also shows the longer term jump in office values which the crisis is yet to really dent locally despite rising vacancy. Brookfield bought the entire complex in 2015 for $116.64 million and is now selling just a half interest for $140 million.

Brookfield bought at a rate of about $8,000 per sqm and is selling around $19,000/sqm, which with leverage implies the company could have quadrupled the capital invested in less than five years.

Marprop has been buying through the crisis and has long targeted “market dislocation” and “misprising opportunities” when it buys, and then pouring work into revitalising buildings.

Its portfolio includes 120 Harbour Esplanade in Docklands, 541 St Kilda Road, Melbourne, 157 Walker Street, North Sydney, and 14 Moore Street in Canberra.

More buildings are close to trading in suburban areas. Funds house EG is chasing the Quad 2 & 3 complexes being sold by Growthpoint at Sydney Olympic Park.

The near-$80 million buildings were pitched as offering a healthy yield by agents Knight Frank and GJS Property.

More big assets are soon hitting the block with AMP Capital to bring 68 Waterloo Road in Macquarie Park in Sydney’s north to market in the wake of Singaporean groups picking up a series of office parks in the area.

Sydney real estate remains a top pick for global institutional investors according to REA Group chief economist Nerida Conisbee, who said core property was in much higher demand.

Although there were challenges in commercial leasing markets, COVID-19 had not negatively impacted investment decision making and there is still no shortage of global capital wanting to buy commercial property, she said.

“Australia’s commercial property became even more popular with overseas investors looking at Asia Pacific … Sydney is now the number one choice for institutional investors in 2021, followed by Melbourne,” Ms Conisbee said.

This article originally appeared on www.theaustralian.com.au/property.