Telstra’s Melbourne HQ sold for $830m
A consortium led by Charter Hall has bought Telstra’s global headquarters in central Melbourne for $830 million, in a deal that shows demand for skyscrapers is running hot.
The first half of this year has been marked by a series of transactions by players such as US private equity firm Blackstone and listed groups Dexus, GPT and Cromwell.
The spree has pushed up values but buyers believe office rents along the eastern seaboard are rising strongly and they will benefit from record low interest rates to finance their purchases.
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The buying is coming from international groups and locals alike, and in this instance the lines are blurred as Charter Hall formed a partnership with a Canadian backer to buy the Telstra building at 242 Exhibition Street.
The property will be held by a wholesale partnership made up of the $5.4 billion unlisted Charter Hall Prime Office Fund, Canada’s Public Sector Pension Investment Board and the listed firm. The consortium structure was flagged by The Australian last month.
The premium 47-storey office tower spans 65,913sqm and has 63,398sqm of office space over 43 floors plus associated retail and carparking levels.
The sellers, Investa’s wholesale property fund and Canada’s Oxford Properties Group, have already started a $17 million building upgrade to boost its value.
Investa says it has sold at an opportune point in the cycle and the deal was struck at a 17% premium to book value. ICPF fund manager Jason Leong says capital markets are buoyant, with capitalisation rates near record lows on an historical basis.
The sale was negotiated by Cushman and Wakefield’s head of capital markets Australia and New Zealand, Josh Cullen, and showed a yield of about 4.5%.
Telstra’s lease expires in the 2032 financial year, with options to renew beyond that period, and it has annual fixed rental reviews of 3.5%.
Charter Hall says the deal will expand its national relationship with Telstra, which built the building for owner-occupation in 1992. The telco briefly considered moving to a new tower before abandoning that process several years ago.
Charter Hall chief executive David Harrison says the purchase reflects the deep relationships the company has with its investors and tenants and shows its capacity to fund major transactions.
“We have a strong track record of creating institutional quality investment opportunities that deliver long-term sustainable income for our investors,” Harrison says.
Demand for office space is rising in Melbourne and the CBD recorded 153,650sqm of net demand in the year to the end of March, double that of Sydney’s CBD, locking in its status as the country’s top performing office market.
“Continued strong tenant demand has placed downward pressure on the Melbourne CBD vacancy rate, which now stands at 3.7%, the lowest level since 1989,” Harrison says.
Charter Hall also invests in Perth and Brisbane towers with PSP Investments, whose managing director, real estate investments, Europe and Asia Pacific, Stephane Jalbert, says the Melbourne transaction was built on this partnership.
“The strong yield profile of this investment and positive growth prospects for the city reinforce our long-term outlook of the Melbourne CBD office market,” Jalbert says.
CPOF fund manager Matthew Brown also cites the favourable Melbourne CBD office conditions as supporting the deal. The trust is now undertaking a raising and has received $300 million in equity from existing investors.
This article originally appeared on www.theaustralian.com.au/property.
