Perth in crosshairs for Singapore office investors

Korea’s KIC is backing ARA Group’s purchase of 81 St Georges Terrace in Perth

The ranks of heavyweight investors pursuing Perth office towers are swelling, with a Singapore fund controlled by ARA Asset Management Ltd edging closer to buying a building in the city’s CBD for about $84 million.

The deal comes as more capital is chasing counter-cyclical opportunities in Perth’s office market.

The Singapore-listed funds manager emerged last December as the lead contender for the Perth CBD tower at 81 St Georges Terrace, which is being sold by interests associated with businessman Nick Tana.

ARA, which also controls listed vehicles, runs a network of unlisted funds across Asia. Buying the tower at this price would give a yield of about 7.25% and continue the run of transactions in Perth, which appears to have been stoked rather than dissuaded by short-term leasing concerns.

Cape Bouvard Investments last month bought back a tower at 12-14 The Esplanade for $51 million that it had sold nine years earlier for $49 million, with the company hoping to benefit from the a future upturn. Paul Craig of Savills brokered the deal on behalf of JPMorgan Asset Management.

Elsewhere in Perth, West Australian-based syndicator Primewest is wrapping up due diligence to buy a half stake in the Exchange Plaza office tower for about $113.5 million. That comes after Morgan Stanley Real Estate Investing came close to buying the interest in a counter-cyclical play last year.

Western Australia-based Warrington Property teamed with investment house Goldman Sachs to buy the Australian Taxation ­Office headquarters in Northbridge for $101 million.

Perth skyline

Perth is under the microscope as foreign investors search for more office investors.

Chinese mainland group YT International snared the Forrest Centre, at 221 and 219 St Georges Terrace, after an on-market tender process via PwC. Bidding continues for Westralia Square at 141 St Georges Terrace and Westralia Plaza at 167 St Georges Terrace.

ARA local managing director David Blight did not return calls.

The St Georges Terrace tower is attractive due to its long-term government lease and proximity to the WA government’s $2 billion ­Elizabeth Quay project.

WA’s economy is in a stabilisation phase, and coming off such a huge peak, it’s inevitable there will be a drop off in activity

JLL managing director John Williams and national director capital markets Nigel Freshwater are handling the sale but were uncontactable.

Buyers are being drawn to assets that have long leases as office vacancies are at high levels.

Advisers, m3property strategist, say the vacancy rate in the Perth CBD rose for the eighth successive six-monthly period, to 19.2% in January, up from 16.6% in July 2015.

The city’s vacancy rate is now at its highest level in 21 years. The most significant increase was in premium grade stock, which jumped to 56,635sqm in January.

FORRESTCENTRE

Chinese mainland group YT International snared the Forrest Centre at 221 and 219 St Georges Terrace

Only 31,171sqm of stock is scheduled to enter the market in 2016, the vast majority in the first half of the year, with no new stock beyond that in the pipeline.

This should see vacancy levels peaking during the first half of 2016, provided there is no major increase in sublease space, m3property strategist says.

Asian investors are seeking out positions in the market.

A group of CBRE senior leaders visited Singapore this month accompanied by Landcorp chief executive Frank Marra, and state government regional director John Catlin, and met investors Singaporean businesses to dispel myths associated with investing in WA after the resources boom.

CBRE managing director Lloyd Jenkins says that during the boom period the state had unsustainable wages growth, a shortage of suitable accommodation and extreme housing unaffordability, as well as a high Australian dollar — all of which had acted as brake.

“WA’s economy is in a stabilisation phase, and coming off such a huge peak, it’s inevitable there will be a drop off in activity, however, from an investment point of view WA is a compelling story,” he says.

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