Timing key for Cape Bouvard investments

When Cape Bouvard began speculative construction on a $15 million, seven-level office building in early 2004, Perth’s office vacancy rate was 12 per cent, the market outlook was dismal and construction costs were spiralling.

More than a few eyebrows were raised at the decision by Ralph Sarich’s private family company to go ahead with construction on the site it purchased, in conjunction with the Allendale Square building, in two stages in 2001 and 2002.

However, the doubters now have red faces, with Cape Bouvard this year showing its critics that risk takers often reap the biggest rewards.

In June, Cape Bouvard signed Alinta to a 10-year, whole-of-building, 7,400 square metre lease, including building signage rights, with NSC Corporate joint managing director Steve Carulli negotiating the lease on behalf of Cape Bouvard.

“Cape Bouvard went into unchartered territory with this building – when they bought in late 2002 the market was depressed, there were 30 per cent incentives and rents were low,” Mr Carulli said. “Cape Bouvard’s foresight in committing to the construction of Allendale II has been well and truly endorsed by the level of market activity and the drastically falling vacancy rate in the Perth CBD.”

Several parties had shown a strong interest in the project and Alinta’s decision to commit six months prior to completion ensured its ability to secure the whole-of-building lease.

Mr Carulli played down the risks associated with the speculative construction, saying the signs were there that, by the time the building came on, the space would be needed in the market.

And indeed it is, with Alinta securing the only new substantial office space likely in the market for the next few years.

Cape Bouvard’s activity last year also included the sale of the Wesfarmers Building for $47.5 million, making it the second biggest office sale of the year, and delivering the company a profit of $11.6 million.

Coupled with the Allendale II leasing coup, Cape Bouvard was the big winner in the property market during 2005.

At the time of securing the Alinta lease on Allendale II, a Cape Bouvard representative said a whole-of-building tenant of Alinta’s quality was a tremendous outcome for the asset in a rapidly tightening market.

“As the newest office accommodation in the Perth CBD, Allendale II will offer the latest building technology and employee amenities – it will also provide superb river views from every level, a new state-of-the-art gym, as well as boasting the highest car parking ratio in the immediate precinct,” the spokesperson said.

The development of Allendale II, the former CTA club building, involved the demolition of the existing upper six levels and the rebuilding of a seven-level structure, as well as the creation of a link between The Esplanade and St Georges Terrace.

The new seven-level building has floor plates of just over 1,000sq m, and Alinta will be consolidating its operations in the building (currently located in GHD House and the Quadrant), including the control room for the Dampier to Bunbury natural gas pipeline.

The lease starts in early 2006.

A rapid and dramatic turnaround in the office leasing market during the past year has caught many by surprise, with the market securing all available space as the climate turns from a tenants’ market to an owners’ market.

Even 1 Adelaide Terrace, which was left as a major blight on the office leasing landscape when Woodside moved to its new building, became fully tenanted over the course of last year.

Baulderstone Hornibrook took over Woodside’s lease obligations (with a commitment until 2008) for the eastern CBD site as a condition it entered into when it won the contract to build Woodside’s new headquarters.

Major tenants in the building include the Department of Industry and Resources (two floors), Lycopodium (two floors), B Digital (two floors), People Telecom (one floor), Worley, and Swiftel.

B Digital also secured naming rights to the building as part of its six-year lease, over 4,500sq m.

Mr Carulli was also involved in negotiating the B Digital lease and his company negotiated several other major deals last year including: 8,000sq m in 81 St Georges Terrace to the Health Department; seven floors to Hewlett Packard and the Western Australian Tourism Commission in 2 Mill St; 5,000sq m in 1 Forrest Place to Centrelink; and 4,500sq m in 55 St Georges Terrace to Legal Aid.