Growthpoint puts $91m into Perth office market

Listed investor Growthpoint Properties Australia has has struck a deal to buy a Wellington Street office building, the latest deal off the back of a healthy sales pipeline for Perth’s commercial office market.

The sale adds to a strong list of properties coming to the market, including premium CBD tower Exchange Tower, currently part-owned by Primewest and AMP Capital, the latter confirming it has listed its 50 per cent stake of the property for sale. 

Growthpoint today announced it had entered into transaction documents with vendor Investa Office Fund for the purchase of 836 Wellington Street, known as Wellington Central, in West Perth for $91.3 million.

The bid reflects a yield of 6.25 per cent and with weighted average lease expiry of 5.5 years.

The A-grade property was built in 2009 and comprises 11,973 square metres over six floors, as well as 138 secured car bays.  

Wellington Central is 100 per cent leased to the Commonwealth of Australia (Department of Home Affairs) with a remaining lease term of 8.3 years.

Growthpoint said Savills had independently valued the property at the purchase price and that settlement, which is subject to contractual conditions, was expected in October 2018.

Growthpoint managing director Timothy Collyer said the acquisition of 836 Wellington Street was the group’s first office investment in Perth and added to its growing portfolio of offices, currently valued at $2.25 billion.

The majority of assets held in Growthpoint’s portfolio are based on the east coast, with existing Western Australian properties including four warehouses in the Perth Airport precinct, which it purchased for $46 million in July 2017.

“Signs of improvement in the WA economy give us confidence that the recovery in Perth is under way,” Mr Collyer said.

“More supportive conditions in the resources industry have led to a stabilisation in falling business investment and while total investment is still subdued, the outlook is more promising.

“Recent employment data, business confidence and business conditions surveys for WA are also much improved and these factors are leading to a better performing Perth office leasing market.

“The removal of substantial sub-leasing from the market over the past 12-18 months, along with a period of subdued development, gives us confidence that the timing of this transaction will closely meet the bottom of Perth’s office leasing market – both in terms of market rents and incentive levels.”

Mr Collyer said the long WALE and ‘AAA’ rated tenant covenant associated with the transaction were both strong considerations in Growthpoint making its inaugural investment into the Perth office market.

It’s a deal that adds to a series of recent investments that are bringing confidence back to Perth’s commercial property scene, including the $125.25 million sale of CBD office building WorkZone West to Sydney-based Elanor Investors Group, brokered by Savills last month.

And there are more significant investment injections for Perth to come, with AMP Capital today announcing it will sell its 50 per cent share in premium CBD office tower Exchange Tower, joining Primewest, which had listed its 50 per cent stake with JLL in May.

Exchange Plaza is expected to fetch close to $350 million and JLL will be offering 100 per cent interest in the property. 

About $255 million has been invested into the Perth CBD office market during the first half of 2018, bringing the 12-month rolling year to June 2018 to $827 million, according to Savills Australia’s latest Quarter Time National Office research report, out today.

Savills Australia associate director for research and consultancy, Katy Dean, said on a rolling-year basis through to June 2018, investment volumes were more than three times the value recorded at same time last year and the highest level recorded in the market since June 2013.

“The last 12 months has been characterised by Australian real estate trusts and funds trading large-scale assets and offshore groups investing; the weight of capital entering the Perth market is significant,” Ms Dean said.

“The level of investment by offshore groups is the largest seen over the last decade and is indicative of the counter-cyclical strategies being deployed by both foreign investors and domestic groups.”

Savills Australia associate director for capital transactions, Nick Charlton, said competition for quality assets in Perth was increasing, with domestic and offshore investors looking at Perth to invest capital.

“There are already examples of this recently with OKP Holdings acquiring 6-8 Bennett Street for $43.5 million, their first overseas acquisition and Elanor Investors Group acquiring their first WA office asset with the acquisition of Workzone West for $125.25million,” he said.

Mr Charlton said assets had been exchanged on market yields of around 7 per cent and, comparatively, that was still high relative to other Australian markets, particularly Sydney and Melbourne. 

Savills Australia Perth managing director Graham Postma said the business had been talking about investor appetite for counter-cyclical and repositioning opportunities for some time, and that it did not believe this had fully run its course yet.

“This rise in investor appetite is reflective of confidence levels on the back of improvements in the leasing market, with declining vacancy and rising occupier demand,” he said.

”Effective rental growth will become evident in the premium sector of the market over the balance of 2018 and into 2019, which will then flow into the A-grade sector.”