Mining giant Rio Tinto appears to have put the kibosh on speculation it will anchor a major new commercial office tower at Elizabeth Quay, extending its lease at Central Park until 2030.
Business News reported speculation earlier this year that Rio Tinto was likely staying put at Central Park, after it moved to put its logo up in lights on the CBD’s tallest building, applying for signage rights through the City of Perth.
The extension of the lease, understood to be for another 12 years following the current deal's expiry in 2018, vastly reduces the likelihood of Rio Tinto anchoring a new office project.
For quite some time, market sources have suggested Rio Tinto was the logical company to underpin Brookfield Property Partners' two-tower plan, still in its preliminary phases, at Elizabeth Quay.
Rio Tinto first took up space in Central Park in 2006, when its Hamersley Iron subsidiary inked a 12-year lease with owners Perron Group and Singapore's Allco REIT, which has since sold its half-stake to Frasers Commercial Trust.
Rio's extension was the headline leasing transaction in the first half of 2015, according to Colliers International's latest commercial Research and Forecast Report.
Other major deals in the first half of 2015 included Ashurst and Wesfarmers committing to relocate to the second tower at Brookfield Place, while Slater & Gordon has moved to Golden Square, formerly known as the May Holman Centre.
Colliers’ report showed A-grade net effective rents were currently $363 per square metre, and are forecast to fall to $303/sqm as more supply hits the market in the next 12 months.
The commercial agency expects the vacancy rate in a year’s time to be 19.8 per cent, up from 16.6 per cent currently.
On the ownership side of the sector, Colliers research also showed the Perth CBD office market is more tightly held than ever, with not a single sale reported in the first half of 2015.
The past 18 months has been marked by a lack of available assets in the market, with the dearth of transactions so far this year following just two major office properties changing hands in 2014 – the Septimus Roe office tower and 130 Stirling Street.
In total, there was $640.4 million in CBD office sales in 2014, according to Colliers International’s latest Research and Forecast report, however $504 million of that was entity-level transfers.
The lack of deals has largely been due to a tight supply of available office properties, with the only major sale being the Monadelphous building in Victoria Park, which sold for $72.8 million.
Colliers International director of investment services, Ian Mickle, said he expected transactions to be finalised shortly on two major office properties, however both are also slightly out of the CBD.
The buildings subject to deals that have not yet been finalised are the Australian Taxation Office’s headquarters in Northbridge, and the ConocoPhillips building on Ord Street in West Perth.
CBD assets on the market include the Insurance Commission of Western Australia’s three office towers – Westralia Square, Westralia Plaza and the Forrest Centre, as well as 1 Adelaide Terrace.
A half stake in the Exchange Tower, formerly Exchange Plaza, is reportedly subject to a $120 million sale to a fund managed by Morgan Stanley, however it is believed AMP Capital, which owns the other half of the building, has last right of refusal on the deal.
The report did not include the $91.5 million sale of the Four Points by Sheraton hotel on Wellington Street, which was bought by Singapore’s Bonvests Holdings earlier this month.
Mr Mickle said he expected increased interest in Perth assets, particularly international investors on the hunt for yield, as the value of the Australian dollar continues to fall.
“This time last year the Singapore dollar was buying about 85 Australian cents,” Mr Mickle said.
“They recently hit parity and are now about 97 cents.
“Given the interest Singaporean investors have had in Western Australia, that represents a significant increase in purchasing power and the last time the Singapore dollar was this strong was six years ago.”
Mr Mickle said yields were expected to remain high in Perth for A-grade buildings, with the research predicting A-grade yields to rise to 8 per cent in 12 months’ time, from 7.75 per cent currently.
