Japanese property group looking to sell stake in Sydney’s tallest building

The market for top-end office skyscrapers is about to be tested, with Japanese company Mitsubishi Estate Asia looking to sell its stake in the $2bn Salesforce Tower. Picture: Gaye Gerard/NCA NewsWire

The market for top-end office skyscrapers is set to again be tested, with Japanese company Mitsubishi Estate Asia looking to sell its stake in Sydney’s tallest building, the $2bn Salesforce Tower, as global investors chase local assets.

The Japanese group has put its 30 per cent stake in Sydney’s tallest office building on the block in a show of its confidence that the premium part of the market is holding up even as lower-grade office towers continue to struggle.

Big investors are taking a fresh look at commercial real estate – despite the woes of offices in the United States – as stockmarket volatility casts unlisted assets in a more favourable light.

At the same time, there is a race on for premium space in Sydney, with leasing deals being struck by law firms at the nearby 33 Alfred St and in the under-construction Chifley South tower.

The next wave of super-towers is not due to come online until the next decade, with rival projects by Lendlease and Dexus and towers above the new metro station still in planning.

Sydney Barangaroo metro station under construction. Picture: Rohan Kelly

The offer of the stake by the Japanese investment house, which alongside China’s Ping An Real Estate backed Lendlease’s development of the premium-grade tower in 2016, comes at a time when there is little stock on the market, although stakes in some major buildings have traded.

The Japanese group has been one of the largest investors in this part of the property cycle, buying up interests in high-profile projects, including the neighbouring One Circular Quay development and Barangaroo, as well as striking ventures across almost every sector of the market including land lease, logistics and residential development.

The offer also shows optimism about recovery in the market, as Ping An last year went to market with its 50 per cent stake in the tower – but that did not change hands, although its availability may boost the attraction of MEA’s interest.

The last trade in the tower was when developer Lendlease sold its 20 per cent stake to its own APPF Office fund at the start of 2022 when the ­office market was more buoyant.

Sydney has since seen a slight pick-up in big sales, with Mirvac selling a two-third stake in the planned $2bn 55 Pitt St tower to Japan’s Mitsui Fudosan, while Cbus Property bought a half interest in 5 Martin Place.

CBRE’s Flint Davidson and Stuart McCann and Nathan Parris from Emerge Capital are handling the sale of the stake in the 180 George St skyscraper, with the move in line with MEA’s global capital recycling strategy and allowing it 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. We have been involved throughout the entire journey of developing this iconic building, and it has been tremendously successful for us, with thanks to our partners Lendlease and Ping An Real Estate,” MEA 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,” he said.

“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,” Mr Nishiyama said.

The group is separately backing Investa’s development of that tower.

The soaring 180 George St is the centrepiece of Sydney Place, at Circular Quay. The precinct is benefiting from more than $10bn in private investment, including the Sydney Waldorf Astoria Hotel and One Circular Quay, with these projects due to complete in 2026, with billionaire Andrew Forrest and his family buying the new luxury hotel.

The distinctive Salesforce Tower comprises 53 office floors spanning 59,916sq m, a ground floor lobby and retail plaza, and three levels of basement parking. Aside from the namesake anchor tenant, it also houses JLL and The Executive Centre.

The Salesforce Building on George Street in Circular Quay, Sydney. Picture: Gaye Gerard/NCA NewsWire

The offer comes as domestic and international investor interest in ­ Australian offices lifts, with $4.2bn in assets trading in the first half of 2024.

Mr McCann said international interest in the Australian offices, particularly the Sydney CBD, noticeably improved in the last quarter.

“This is being driven by a combination of genuine value emerging, with pricing reverting 20-30 per cent from the peak, together with continued strong leasing performance.

“Australia’s office sector now looks to represent the best value in the Asia Pacific region,” he said.

Mr Davidson said 180 George St was Sydney’s newest premium grade tower and was built with the future of offices in mind.

“With the expectation that the newest and best assets will continue to outperform, together with a constrained future supply pipeline, we expect capital will see this as a compelling opportunity to get set in the CBD core,” he said.