$200m in new CBD investments

Renewed interest in the Perth office market among interstate investors was further confirmed last week with sales of CBD office assets worth nearly $200 million.

The property industry has been buzzing with the news that the Government Employees Superannuation Board (GESB) had a conditional contract to sell its half of Central Park to the Sydney-based Allco Finance Group for $155 million, while Singapore-based Sword Properties had a conditional contract to sell Australia Place to WA group Primewest for $32 million.

Significantly, analysts say four other offers were made on Central Park and two others on Australia Place, showing an appetite for Perth office assets not seen for several years.

Although both transactions were off-market, the properties have been for sale for some time.

GESB has been looking to dispose of Central Park since 2000, with the Perron Group buying 50 per cent for $150 million in 2003.

Australia Place had been placed on the market four times since 1998, each time with an asking price of more than $35 million.

Jones Lang LaSalle national director of commercial sales John Williams said there had clearly been a shift in attitude towards the Perth office market from eastern states-based investors.

“There was some reluctance from the eastern states buyers to invest in office assets in the Perth CBD in 2003 and 2004. This has changed,” he said. 

“Perth is now a definite buy and a significant amount of capital is seeking to find a home in our market.”

Mr Williams attributed the shift in attitude to two main drivers – Perth offers good value in comparison to eastern states markets, and the continuing strength of the Western Australian economy.

“In addition, it is relatively simple to build a strong argument to invest in Perth office assets,” Mr Williams said.

“Last year delivered positive net absorption of office accommodation in excess of 50,000 square metres, the highest since 1995, and the supply of new office space is likely to be limited to smaller developments of 15,000 to 20,000 square metres each.”

Demand from investors will continue at an aggressive rate, he said, particularly in the period prior to further interest rate increases, with owners invariably taking advantage of demand.

“Interest will certainly be maintained throughout 2005, but in the long term it depends on things we have no control over like interest rates. For now, though, there is much more demand than supply and buyers have to act quickly and decisively if they want to get a look in,” Mr Williams said.

The rapid increase of interest in owning office assets is positive news for Perth’s leasing market, which has lagged behind the rest of the county in recent years.

Knight Frank state director of asset services, Ian Edwards, said the sales and leasing markets were inextricably linked, and that when buying offices became good investments, it meant the leasing market was positive.

“Vacancy rates continue to fall in all sectors, and this bodes well for the office market as an investment, particularly since a lot of institutional investors are underweighted in Perth,” Mr Edwards said.

Mr Williams said the Perth market had spent the last 15 years recovering from the oversupply in office accommodation of the early 1990’s.

“In the three years from 1990 to 1992, a total of 256,000 square metres of new speculatively built office accommodation was dumped onto the market,” he said.

“It has taken until 2004 to absorb sufficient [amounts] of this space to change the market from one where tenants dictate terms to one rapidly approaching a landlords’ market with the strong anticipation of strong capital growth.”

The two major contracts entered into last week mark a turn in sentiment to the Perth market, according to Colliers research manager David Cresp.

“The market is a lot more bullish than it was 12 months ago, and assets are getting very seriously looked at which have been on the market for a while,” Mr Cresp said.

“Last year was a slow year for sales, but the signs for this year are very positive with institutions over here and actively looking for opportunities to enter the market.”

PERTH CBD ASSETS

• Recent sales signal a shift in attitude by eastern states-based investors.
• Government Employees Superannuation Board (GESB) has sold its half of Central Park to the Allco Finance Group for $155 million.
• Singapore-based sword Properties has sold Australia Place to Primewest for $32 million.
• Good buying value and continued strength of WA economy seen as two drivers of this investment change.