Off-market A-grade office building purchased by South African-listed fund
South African-listed Investec Australia Property Fund has bought an A-grade office building at Eight Mile Plains south of Brisbane in an off-market transaction.
The fully tenanted property was purchased on an 8.25 per cent yield for $20.9 million from Office Park Developers.
IAPF chief executive Graeme Katz told Property Observer the building fit within the original mandate set for the fund when it listed on the Johannesburg Stock Exchange late last year.
“We were looking for assets with good lease tenure, new or near new assets, in good areas without necessarily buying in Eagle Street. This ticks all of those boxes. It’s well-built, with good quality tenants, near the motorways and with plenty of parking,” Katz said.
Tenants in the 3,568 square metre property at Garden City Office Park include health care provider Healthscope and Uniting Church-funded health and community service provider Bluecare. The leases have medium- to long-terms with contracted rental growth of about 3%.
The fund also includes six high quality logistics properties and two A-grade office buildings in the metropolitan areas of Melbourne, Canberra, Brisbane and Adelaide.
Katz said the fund was not looking for trophy assets and did not want to compete for prime CBD properties with major Australian institutional investors. The fund managers preferred to use their relationships to source transactions.
There was strong demand from South African investors in Australia’s commercial property market and the fund, which is currently ungeared, had capacity to expand, Katz said.
“We’re not bulking up for the sake of bulking up. We’re not chasing fees. We are going to maintain our discipline but there’s appetite for investment and our first target is to invest our capital to reach targeted gearing levels of 30-35% gearing,” he said.
There was no set date for the target to be met and further acquisitions would be made opportunistically, he added.
The purchase comes as foreign investors continue to eye the Australian office market.
A recently released Colliers International report into CBD office markets found that offshore investors were the second most active group of buyers of Australian CBD office property, although their involvement in the market has fallen markedly since 2012. Colliers put the drop in offshore buying down to increased competition from Australian institutions.
In total, $8.1 billion worth of Australian CBD office buildings transacted in 2013, up 16% on the previous year. Australian institutional investors bought $4.2 billion of prime office stock compared with $1.6 billion purchased by foreign investors. Offshore buyers were more active in the secondary property market.
The Colliers report forecast rental rates in Brisbane CBD offices would fall by around 3% in 2013-2014, following a contraction of around 13% in 2012-2013, due to higher levels of supply and a shrinking public sector workforce.
However, the report noted that leasing fundamentals indicated the Brisbane CBD office market was approaching the bottom of the cycle and vacancy rates were not expected to rise substantially in 2014.
The research backs an earlier report into the sector, published in late September by Knight Frank, which found that the Brisbane market was suffering from softening tenant demand, a shrinking state government workforce and private sector contraction.