Office landlords start 2019 with a $1.6 billion bang in Sydney

Sydney's MLC Centre is a landmark building. CREDIT:JIM RICE

SYDNEY, Jan 16, 2019, SMH. The commercial property sector has kicked off 2019 with $1.6 billion in major asset deals underway, reported The Sydney Morning Herald.

Sydney’s tallest office tower – Martin Place’s MLC Centre – could soon have a new part-owner after major property investor GPT Group said it will sell its half stake in the landmark building, with expectations the deal will top $800 million.

While Sydney’s residential real estate market has been in the doldrums, the city’s large-scale office property market – those towers worth more than $500 million – has been going gangbusters.

Hot on the heels of GPT announcing its planned sale, major property investment managers Charter Hall revealed it had settled its acquisition of two office towers in the prime Barangaroo/King Street Wharf precinct for $804 million. The properties at 10 and 12 Shelley Street will be held by two of Charter Hall’s unlisted funds.

On Wednesday, GPT plans to pour the money it earns from the sale of the building on Sydney’s historic financial strip into new office towers — one atop Melbourne Central shopping mall and one on Parramatta’s Smith Street.

GPT’s planned sale of the Harry Seidler designed building comes after Macquarie Group won NSW government approval for two new office towers objections from other landlords located in the centrally located walkway. A sale would see GPT exit the prime commercial property strip.

GPT jointly owns MLC Centre with office landlord specialist Dexus. In December, GPT upgraded the value of its stake in the centre by 5.2 per cent, or $37 million, to $764 million.

Dexus and its wholesale fund purchased a 50 per cent stake in the building in 2017 from QIC Global Real Estate for $722 million, or a 4.5 per cent yield.

Dexus or an international investor, possibly a large scale pension fund, are expected to be potential bidders for the asset. Dexus has a pre-emptive right to purchase the stake.

The building has gone through a significant the upgrade over the past five years, with vast improvements made to its once-tired food court and a releasing program that has bolstered the earning potential for any future landlord.

“The Sydney CBD office market has experienced significant rental growth and cap
rate compression over the past five years, and the group’s successful repositioning of the
asset has generated exceptional returns for GPT,” GPT chief executive officer Bob Johnston

“The Group plans to reinvest the proceeds from the sale into its development pipeline,
which includes the new office tower at 32 Smith Street, Parramatta, and a planned new
office tower at Melbourne Central,” Mr Johnston said.

“The Group will also continue to seek new Logistics development opportunities following the completion of a number of successful developments over the past two years.”

GPT expects the divestment will not have a major impact on its 2019 earnings.

Following the sale, GPT’s Sydney office exposure would initially reduce to 60 per cent from 65 per cent. At the same time its weighting to Melbourne office would increase to 34 per cent from 30 per cent previously.

Share it

Exclusive: Beyond the Covid-19 world's coverage