Office towers in play as yields tighten

Two more office towers are in play on ‘s east coast as offshore money continues to underpin commercial property values.

A Singaporean developer who snapped up a rundown Franklin Street office in Melbourne last year hopes to sell it for around $100 million and double its money just one month after leasing the entire tower to the Victorian government.

And Investa Property Group has moved to offload a 13-level tower with 9,800 square metres of lettable space and another 1000 sq m of retail at 130 Pitt Street in Sydney’s CBD through Savills and Inc RE.

The Pitt Street office has 96 per cent occupancy and a 2.15 weighted average lease expiry and is understood to be worth around $195 million.

Savills’ Ben Azar said there was potential for strong rental growth across the office and retail components of the building in the short term.

In Melbourne, Singapore developer Lian Beng has been a hyperactive offshore player.

The group has bought and sold several buildings over the past two years but its latest property move is perhaps its most audacious.

It will offer the 18-level city office at 50 Franklin Street to buyers one month after fully leasing the tower to the Department of Justice and Regulation and Carlton Justice Service Centre on a 10-year agreement.

It purchased the building late last year for $51.5 million from 11 individual strata owners just before the office’s major tenant ASX-listed call centre group Salmat was due to vacate in February.

The tower remained largely empty for most of this year until the deal was signed with the two Victorian government departments.

Colliers International and Savills were appointed to market the building.

‘s office values have been underpinned by interest from offshore institutional investors.

Two-thirds of capital ($1.5 billion) spent so far in Melbourne’s office sector this year has come from offshore, and similar sources account for about one third ($1.1 billion) of Sydney’s sales, Colliers research shows.

Average reversionary yields for A Grade office were between 5.15 and 5.3 per cent in Sydney’s core precinct and Melbourne’s CBD.

Investors from South Korea, Europe – particularly Germany – and Singapore were focussed on passive investments, while existing developers – including from Malaysia, China and Singapore – were looking to recycle capital from completed projects back into .

“We see yields compressing at least a further 25 basis points across both A and B Grade assets through the remainder of the cycle”, Colliers research head Anneke Thompson said.

Other recent transactions have proved equally lucrative for Lian Beng, listed on Singapore’s exchange with a market capitalisation around $410 million.

In July, it sold a development site at 596 St Kilda Road for $34 million to a Taiwanese developer for a tidy $10 million profit after obtaining a planning permit for a 19 level building with 170 apartments.

Two months before that it offloaded Newspaper House, a building at 247 Collins Street defined by its colourful 1930s mural.

The seven-storey office also traded on a healthy profit, selling for $35 million to Malaysian conglomerate Oriental Holdings after it was purchased for $23 million in 2015.

Eds note: An earlier version of this article cited Anneke Thompson as being from Savills. Ms Thompson works for Colliers International. The research cited here is from Colliers.

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