Tower deals crashing through rising rates as capital chase forges on

Supplied Editorial Poly is selling 1000 La Trobe Street which will house retailer Myer

Poly is selling 1000 La Trobe Street which will house retailer Myer

The office market is hanging on the completion of major deals across the nation with gyrations in debt markets dictating a shift in values. Rising bond yields are making for a more challenging environment for buyers, who are still keen to invest in office towers which will benefit from the return to work theme.

Big buyers also want to put their capital to work, particularly funds managers chasing newer buildings which are well leased or are in busy markets.

But some repricing is emerging as deals which have been agreed are hit by higher interest rates and some buildings have been pulled from sale after campaigns in Brisbane, Melbourne and North Sydney.

Some were offered with high price expectations which were tough to meet and their owners are still well ahead as values have risen across the cycle. Prospective buyers remain keen to transact but are wary that capitalisation rates are unlikely to tighten further and could come under pressure from rising interest rates.

The office market should see another strong quarter with close to $3bn worth of assets trading in Melbourne and activity spreading into the other markets.

Melbourne is awaiting the finalisation of a deal that would see funds powerhouse Charter Hall acquire the Southern Cross Towers complex from Brookfield and Blackstone for about $2.1bn, being sold through Cushman & Wakefield and CBRE.

The play is backed by Singaporean fund GIC and buyers hailing from the city state are setting a fierce pace as they are also behind the $325m purchase of 120 Spencer St, through the same agents.

Supplied Editorial Poly is selling 1000 La Trobe Street which will house retailer Myer

Poly is selling 1000 La Trobe Street which will house retailer Myer

The Australian understands that 330 Collins St is also in due diligence, with offshore backed HThree City Australia in the box seat for the 20-level office tower tipped to sell for more $230m via the same pair of agents.

Other buildings are drawing more opportunistic buyers. The contest for 1000 Latrobe St, offered for sale by Poly, has drawn funds groups willing to bet on the near-complete tower being leased up.

Bidding for the building, which will house retailer Myer, has moved into a second round with houses like Fortius, Realmont, and Vantage chasing the asset being offered via Colliers and Knight Frank.

Brisbane also has a series of buildings in due diligence and some transactions closing. Funds house Wingate has bought 200 Mary St from Cromwell for $108.5m in a deal brokered by CBRE’s Bruce Baker and Tom Phipps.

Other buildings in the city are also close to trading with Green Square South Tower in Brisbane’s Fortitude Valley attracting a buyer at more than $200m.

It last traded in 2019 for $205.5m to South Korea’s Teachers Pension via asset manager AXA Investment Managers. It is being sold via CBRE and JLL.

In Perth, Canadian giant Brookfield is selling a famed St Georges Terrace building, which is tipped to draw bidders as few such large assets have been offered in WA.

The building at 108 St Georges Terrace is set to generate local and offshore interest, with offers for the Perth CBD landmark tower anticipated to be more than $350m. JLL and CBRE have the listing.

The contest for the 51-level tower, which spans 38,332sq m of A-Grade office space, and others around the nation could provide a pointer to where the market is headed.

Pundits expect that Sydney will pick up after a relatively quiet 2022 where deals have been thin on the ground.

Holdmark bought a Bligh St complex in the Sydney CBD for about $210m and LaSalle Investment Management bought the office component of 88 Walker St for about $170m.

Australian Unity also sold a Parramatta complex for just over $87m.

A return to form in Sydney, where Brookfield and LaSalle are selling buildings, could signal that the market will steady.