Lendlease boss lauds strong city office markets
Office buildings in the major east coast capitals are fully priced as a wave of capital seeks assets with long-term leases in place, according to Lendlease chief executive Steve McCann.
But the residential sector in Melbourne is taking a breather before coming back to life in two or three years, although some developers of suburban projects may struggle to secure funding and could sell distressed sites.
Lendlease yesterday opened a new Melbourne headquarters in the first tower of its $2 billion Melbourne Quarter project, complete with an elevated Wi-Fi-enabled park accessed via a spiral staircase and open to the public during the daytime.
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McCann emphasised the importance of looking for tenant precommitments in the group’s new commercial projects despite the buoyancy of the major office markets, with the Melbourne tower 50% taken up before construction began.
“Melbourne and Sydney (offices) are both very strong today; they’re enjoying a bit of a boom in that sector,” McCann says.
“We’ve been in a low-interest-rate environment for a long time and asset values are fully priced, so in that sort of environment there’s a lot of capital interested in sustainable long-term office commitments with long leases. There’s plenty of capital looking for a home. It gives you an opportunity to do a deal that stacks up. But we’re pretty disciplined.”
By contrast, the residential market has been through a “pause” despite Melburnians’ desire to live in the city centre.
“A lot of projects have been canned, so there’s not much supply being built now,” he says.
“Because of the strength of the rental market and the investment market, we think Melbourne will see not as much activity over the next two years as you have seen over the last 10, but it will start again in about two years’ time, two to three years’ time.”
So the group is “quite bullish” on the Melbourne medium-term residential market, he says.
But he is a little bit concerned about suburban markets in the two largest capitals, where small developers are struggling to get funding.
“So there’ll be projects that can’t deliver because banks aren’t lending, and so there’ll be distressed assets as a result,” he says. “We don’t think that contagion will affect the CBD. We’ve been wondering whether that’s an opportunity for us but we know what we’re good at … it would have to be a scale opportunity.”
The group was doing its homework on whether it should snap up distressed sites, he said. “But we’ve got a bit of work to do.”
Lendlease staff from three offices have relocated to three levels in the new 13-storey building in an urban regeneration project that will eventually include three office blocks as well as apartments and open public space.
Owned by the Lendlease-managed Australian Prime Property Fund Commercial, the first building to open will be home to about 2500 workers including from engineering firm Arup and financial services giant AMP.
Lendlease has separately mandated ANZ, HSBC and Westpac to arrange debt investor meetings, and a debt offering may follow, Bloomberg says.
This article originally appeared on www.theaustralian.com.au/property.