After a year of few sales, Perth CBD office market heats up

Perth’s CBD office market has started to simmer, with more than $533 million worth of substantial office building sales clocked this year.

Major sales last year totalled about $150 million.

Stockland has sold its 50% holding in the 52-level BankWest Tower on St Georges Terrace (pictured) for $130 million to joint owner Brookfield Prime Property Fund.

South Australia’s Motor Accident Commission has picked up the CBD’s most eco-friendly new building at 226 Adelaide Terrace for about $100 million from the First State Group.

These two sales are the most recent in a spate of buildings to change hands in Perth. Last year not a single major investment was sold.

One of the biggest deals being done in Perth this year was an option to buy 192 St Georges Terrace, which the Commonwealth Property Fund was offloading for $152 million. The fund is also selling its Mill Street property.

Other sales include 99 St Georges Terrace, which was bought by a Singaporean investment group, and 432 Murray Street also changed hands for about $30 million.

The UK-based insurance company Standard Life bought 182 St Georges Terrace for $30 million and the Perth-based investment syndicate Australasian Property Investments paid $30 million for 30 The Esplanade.

CB Richard Ellis’s Andrew Woodley-Page, who negotiated two of the deals, says most of the current sales took more than a year of marketing to secure a transaction.

“It looks like the market has gone mad, but it is pertinent to note that nearly all of these sales have taken between nine and 18 months of marketing to sell. There is a willingness to buy investment quality office buildings in Perth, but buyers remain conservative and cautious,” he says.

The only investment to sell within six weeks of marketing was 226 Adelaide Terrace.

“The fundamentals of the Perth market are very sound. Once the flow-through of the current development cycle has been taken up, we will see very tight vacancy rates in the CBD since there are no more big projects in the pipeline,” Woodley-Page says.

All of the buildings that sold are well-leased to mostly prestigious tenants, and yields range from 8.4% for both The Esplanade and 99 St Georges Terrace to 10.7% net on 197 St Georges Terrace, which was bought by Sydney’s GDI Property Group.

Several other major deals are being closed, including the a 10-level office building at 251 St Georges Terrace for more than $65 million to investors and the New Esplanade Hotel site for about $20 million. Both vendors are receivers and managers.

According to John Williams, managing director of Colliers International, the activity indicates investor confidence.

“There is a lot of confidence in the future strength of the Perth CBD market. There were no sales last year for the first time in more than a decade, and that caused pent-up demand. Owners knew the vacancy rate was tightening and rents rising, so they held out and have benefitted,” Williams says.

Another smaller sale is underway for 41 St Georges Terrace for $17.5 million and a further two similar deals are currently going through due diligence.