10/01/2006 - 21:00

Record-breaking year for office sales

10/01/2006 - 21:00

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After a lengthy period of stagnation, Perth’s office sales market last year broke all previous records with unpredicted momentum generated by a shortage of supply and rising rents.

Record-breaking year for office sales

After a lengthy period of stagnation, Perth’s office sales market last year broke all previous records with unpredicted momentum generated by a shortage of supply and rising rents.

Sales of property valued at more than $3 million in the Perth office market reached a total of $468 million, significantly more than the total value transacted in 2004 of $190 million.

Only two major CBD properties were sold in 2004, for a total of $28.7 million. In 2005, however, interstate, overseas and local buyers jostled for a piece of the market, which has undergone a dramatic turnaround in just 12 months.

And while owners are achieving substantial returns on sales, industry analysts say buildings are being sold below replacement cost and that further sustained growth can be expected.

The biggest deal of 2005 was the $168.5 million purchase of a 50 per cent stake in premium office tower, Central Park, by eastern states-based Allco Finance Group.

Allco bought the stake from the Government Employees Super-annuation Board (GESB) and now owns the building jointly with Stan Perron’s Perron Group, which has total commercial property assets valued at more than $1.2 billion.

GESB has been involved in Central Park for more than 20 years, first acquiring a half-interest in the Central Park development site in 1985 for $6 million from infamous practitioners in the art of corporate excess, Alan Bond and Laurie Connell, who retained the other 50 per cent interest.

Mr Bond later bought Mr Connell’s interest in the project, with Warren Anderson later buying Mr Bond’s 50 per cent share for $57 million. This was then on-sold to GESB, making it the sole owner.

The 48-storey Central Park tower was complete in 1992, and since 1999 GESB has been trying to sell all or part of the building.

In 2003, the Perron Group bought a 50 per cent stake for $150.7 million, electing not to purchase the whole building.

Jones Lang LaSalle national director of sales and investments, John Williams, told WA Business News that four offers above $150 million were made in 2005 for the stake in Central Park, showing a clear shift in attitude towards the Perth office market from eastern states-based investors.

WA’s second biggest office sale was confirmed in December, with Wesfarmers House at 40 The Esplanade selling for $47.5 million to Melbourne-based fund manager, SAITeysMcMahon.

The 12-storey property was purchased from private Western Australian investment company Cape Bouvard Investments, which is owned by the Sarich family and is one of major the owners of office buildings in the city.

At the time, a Cape Bouvard representative said the sale reflected the company’s strategy of buying at a time when the market was undervaluing an asset, restructuring its cash flow and then selling the asset once the market had improved.

“Cape Bouvard Investments is not looking to exit the Perth market but will sell assets when it believes the price is right,” the spokesman said.

Cape Bouvard bought the property for $36 million in 2001, with the recent sale delivering a hefty $11.6 million profit.

The sale also achieved the highest price per square metre of any office sale in the last year, netting $4,095/sq m.

Savills WA director for investment sales, Miles Rowe, who negotiated the sale with Savills managing director Paul Craig, said Wesfarmers House was a quality “A Grade” building positioned on The Esplanade, providing uninterrupted views over the new Perth Convention Exhibition Centre and the redevelopment of the Perth Port.

The 11,076sqm building is fully leased with the major tenant, Wesfarmers, occupying 4.5 floors.

Mr Rowe said a convergence of key factors during the past six to nine months had ignited interest in the Perth CBD office market.

“Record levels of net absorption flowing from the resources boom have cleaned up a large amount of the residual vacancy,” he said.

“In addition, rising costs and a two- to three-year construction timeframe for proposed develop-ments have increased the economic rent for new office buildings in Perth. 

“As a result we will see significant rental growth in the next three to four years, and this is what has caught the eye of investors.”

The year’s third biggest sale took place outside of the CBD, with the state government-leased Sevenoaks building in Cannington selling in February for $35.7 million to Queensland-based Property Funds Australia.

The buildings was built for the Australian Taxation Office in 1992, with the Commonwealth Bank taking possession in 2003 after Fairmile Holdings was unable to meet loan repayments.

The four-storey, 22,202sq m building is used as the state government’s office of shared services, and a new $6.17 million fit-out began in May, funded by an incentive provided by Fairmile.

Back in the CBD, the next two biggest were 15 William St (Australia Place), which sold for $31.5 million at the beginning of the year to Primewest Management, a private Perth property group of which John Bond is a director.

The year closed with Perth developer Houssean Pourzand’s purchase of the Clough building at 251 St Georges Terrace for $30.8 million.

The building was previously owned by the National Australia Bank Superannuation Fund, which secured a capital gain of nearly $10 million on its 2000 purchase price of $21.3 million.

Mr Pourzand’s other substantial acquisition during the year was the $21.5 million purchase of the Raine Square development site, with partner Luke Saraceni.

A development application was lodged late last year for a nine-storey, 30,000sq m building, but an anchor tenant has yet to be confirmed.

Representing the sixth sale over $20 million, late in the year 12 St Georges Terrace was sold by Singapore-backed Hennex Management to Sydney-based GDI Group for $23 million.

There were four office sales between $10 million and $20 million during the year and 15 sales between $3 million and $10 million to a diverse range of buyers.

Overall, however, the sales show a notable increase in eastern states buyers showing an interest in the Perth market, as well as cashed up locals with an eye on the market taking advantage of conditions.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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