Quintessential Equity in $73 million office buy
Quintessential Equity has emerged as the buyer of Australian Unity’s 30 Pirie Street office tower in Adelaide and will spend almost half of the $73 million purchase price to reposition the A-grade building that will lose anchor tenant Telstra next year.
Quintessential will spend $30 million to upgrade the 24,078-square-metre tower built in 1987. Telstra, which still occupies 91 per cent of the building, will start vacating next year before a complete move to Charter Hall’s new 60 King William Street tower.
The refurbishment cost, equal to 41 per cent of the purchase price of the 23-level tower, made sense because rising construction costs would ensure limited new supply coming onto the market, Quintessential executive chairman Shane Quinn said.
“It’s an institutional-grade asset that needs some work and a little bit of love,” Mr Quinn told The Australian Financial Review.
“A lot of new builds aren’t going to get out of the ground due to increasing costs in construction and a softening of cap rates. There’s not going to be a whole city of brand new offices.”
Quintessential paid book value for 30 Pirie Street.
Across the country, the outlook for office property is darkening. The Property Council of Australia’s latest quarterly barometer of sentiment, released last week, put the outlook for capital growth in office assets at a two-year low.
The country’s two largest office landlords, Dexus and Charter Hall, reported declining valuation of office assets, and analysts expect further declines across the sector.
Commitments ease uncertainty
At 74 per cent, Adelaide’s CBD had the second-highest occupancy rate after Perth (80 per cent) of the mainland capitals, separate PCA figures show.
There is still competition for tenants. Max Frohlich, Knight Frank head of institutional sales in SA, who marketed the property with Colliers’ Paul van Reesema, said the office towers under construction were mostly committed.
Cbus Property’s 30,000-square-metre 83 Pirie Street tower was 90 per cent committed, Charter Hall’s 60 King William Street was 98 per cent committed and Walker Corp’s Festival Tower, just north of the core CBD in the Festival Centre precinct, was about 46 per cent committed.
“Adelaide’s development market is traditionally pre-commit market which de-risks uncertainty around future supply,” Mr Frohlich said.
“Economic rents for these pre-committed buildings have set benchmarks which will have a positive impact on rents for existing high-quality A-grade accommodation, and older low-standard backfill buildings will require extensive repositioning.”
Australian Unity Office Fund manager Nikki Panagopoulos said the fund divested the tower because it had three office towers that it needed to upgrade and did not have the capacity to refurbish all three.
The sale of 30 Pirie Street would allow the fund to push ahead with refurbishing the 14-level A-grade tower at 2-10 Valentine Avenue in Parramatta, Ms Panagopoulos said.
Quintessential Equity plans to upgrade the Pirie Street building’s ground-floor lobby and end-of-trip facilities, make tenancy refurbishments, and modernise the lifts and building facade. It will also list the building to a minimum 5 Stars NABERS base building energy rating.
