Dexus acquires Brisbane’s “Blue Tower” as it sees office growth potential in Queensland capital

Listed property trust Dexus has announced the acquistion of two prime office acquisitions in the Brisbane and Sydney CBDs as its portfolio weighting in office assets increased to 70% over the course of 2012 financial year to June 30.

Dexus has acquired the 12 Creek Street office tower in the Brisbane CBD known as the “Blue Tower” due to its distinctive blue glass façade for $241.6 million.

The 34-level building, which was built in 1989, has 32,000 square metres of office space and was put up for sale by the Australian Property Growth Fund marketed by Bill Tucker and Rick Butler of CBRE and Geoff McIntyre and Ben McGrath from Jones Lang LaSalle.

Tenants include a number of resource and mining businesses including Esso Australia and BMA Coal as well as Optus, Macquarie Bank and the Reserve Bank of Australia.

Dexus is expecting mining and business services to drive demand growth in the medium term in the Brisbane CBD with the current vacancy rate of 8.3% expected to trend downwards.

Chief executive Darren Steinberg says Dexus is targeting an internal rate of return of 10.2% per annum over the next 10 years for the building, which has been significantly upgraded.

“We are increasing our presence in Brisbane which has favourable growth forecasts,” Steinberg said at today’s full results briefing.

The Blue Tower is only the second Brisbane office tower owned by Dexus.

It’s other Brisbane office holding is the 26-level 123 Albert Street building, which opened in October last year  with a six star Green Star energy rating.

It is more commonly known as the "Rio Tinto" tower with the mining giant leases 25,600 square metres of the total 37,000 square metres available in the building in a 10 year deal, which commenced with the opening of the building.

The 12 Creek Street acquisition means Dexus operates over 55,000 square metres of Brisbane office space - 10% of its office portfolio.

Dexus has also acquired 50 Carrington Street, a 19 level tower in the Sydney CBD, overlooking Wynyard Park with tenants including REST Super fund, Austral Mortgage Corporation and Goldberg lawyers.

Steinberg says the office tower, which was built in 1982 is a “well located boutique property” that it intends to refurbish.

Dexus is targeting an internal rate of return of 10.6% over the next three years and Steinberg says he is excited about the acquisition, with new leasings to be targeted at lawyers and accounting businesses.

Dexus expects demand for Sydney office space from the banking sector to be subdued in 2013 – Dexus has 52% of its office portfolio in Sydney covering 259,000 square metres of space.

Steinberg says that under the revised Dexus strategy, it will focus on “office sector leadership” and expects investors to gravitate to “quality real estate”.

“We will be the proxy for high quality Australian offices and aim to be the leading owner and manager of Australian offices,” he said.

Steinberg says the new strategy includes “keeping close to our tenants and have proactive approach to managing our tenants”.

“We are confident we can retain key tenants.”

Following the sale of the US portfolio, Steinberg says Dexus's offshore exposure is now considered “non-core”.

“We will focus on the core CBD office markets of Sydney, north Sydney, Brisbane, Melbourne and Perth.”

However, he says Dexus will not target specific percentage holdings in CBD markets, but will make acquisitions where it sees value.

Ross Du Vernet, Dexus head of strategy, transactions and research, says the growing divergence in views about global growth will impact on tenants' commitments to longer-term office leasings.

However, he says the view among Dexus's key office tenants is “not too bad” but they remain cautious.

Du Vernet says most CBD office markets are at equilibrium except for Perth, which is undersupplied, while the Melbourne market is oversupplied.

“Melbourne is the toughest, with Perth and Brisbane the best.

“Rental growth is expected to soften in Sydney due to the Barangaroo South project, but we still expect growth," says Du Vernet.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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