Dexus sells $285m tower as tenant activity lifts
After two years of falling net supply, Brisbane CBD’s office stock levels are expected to rise.

Dexus sells $285m tower as tenant activity lifts

Dexus has offloaded a $285 million A-grade office tower to Brisbane-based boutique funds manager Marquette Properties, amid signs tenants are beginning to strike lease deals as the pandemic-induced uncertainty washes out of property markets.

Dexus held a half share in the 34-storey building at 10 Eagle Street with the Dexus Office Partnership. It will use its half of the $285 million proceeds to repay debt, with settlement expected in May this year.

The tower, in Brisbane’s “golden office triangle”, was built in 1978 and is 92 per cent occupied with a weighted average lease expiry of 2.9 years to tenants AEMO, Wilson Parking and Accenture.

The gross sale proceeds represent a 1.8 per cent premium to book value and imply a 5.4 per cent cap rate, according to Macquarie analysts. “We estimate recent transactions in office markets have occurred at a 1 per cent premium to book value,” they said.

Dexus’ chief investment officer Ross Du Vernet said the transaction continued the group’s “asset recycling strategy” and reduced funds exposure to the Brisbane office market.

After two years of falling net supply, Brisbane CBD’s office stock levels are expected to rise by mid-year as the Midtown Centre at 155 Charlotte Street (42,000 square metres) and 80 Ann Street (60,000 sq m) come online, according to research from Cushman & Wakefield.

Deloitte Access Economics estimates white-collar employment in the Brisbane CBD decreased by 3500 last year. While economic growth is expected to rebound this year, the recovery in employment is forecast to lag as company cost saving and increased flexible working slow demand, Cushman said.

“Premium-grade gross effective rents are down 4.1 per cent year on year to average $540, pushed down by a 7.1 per cent increase in average incentives over the last 12 months,” it said.

Marquette’s managing director Toby Lewis said the Brisbane-based investment firm was thrilled to be acquiring the tower.

“Despite the ongoing long-term uncertainty associated with the COVID-19 pandemic, we have enabled more than 150 Australian families to invest in 10 Eagle Street and look forward to delivering strong returns as Brisbane continues to grow as a city and a city to invest in,” he said.

Cushman’s research shows there is an uptick in leasing activity as deals delayed by COVID-19 resume, but higher vacancy is putting upward pressure on rent incentives in Australia’s main office capitals.

Sydney’s CBD vacancy increased sharply from 5.6 to 8.6 per cent over the six-month period to January, Property Council of Australia data shows.

Average incentives in Sydney rose from about 32 per cent in the December quarter to 33 per cent in the March quarter this year. Premium-grade incentives rose to 37.5 per cent from 34.8 per cent over the same period in Melbourne.

A pick-up in office demand is not being evenly spread around the country. The ACT, South Australia and Western Australia are seeing the strongest growth, according to Colliers International.

“The positive numbers we are seeing in the latest labour force data are pointing to a recovery in net absorption sooner than we initially anticipated, particularly in Sydney and Adelaide,” managing director of office leasing Simon Hunt said.

“Green shoots are definitely emerging in Australia’s labour markets with an expected flow-on effect to office demand,” he said.

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