Blackstone sets up Sydney office play

The premium end of Sydney’s commercial property market is headed for greater heights.

Liberty Place in Sydney.

The premium end of Sydney’s commercial property market is headed for greater heights, with US private equity group Blackstone looking to strike a series of deals involving about $3bn worth of the city’s best office towers.

The group and Canada’s Ivanhoe Cambridge have just sold their one-quarter stake in the $1.6bn-plus ANZ headquarters tower to industry superannuation fund-backed group ISPT.

ISPT chief executive Daryl Browning said the group liked the area and the latest purchase would complement its holdings in the city’s mid-town.

“We know the building well, its been a good investment for us,” he said. “We think the precinct has been ­enhanced with the new metro station providing greater accessibility.”

The sale had pitted the tower’s co-owners, a GPT-run fund, which held a 50 per cent interest, and ISPT, with 25 per cent, against each other.

The deal showed a pricing reflecting a capitalisation rate of about 4.1 per cent and was brokered by JLL’s Robert Sewell and Simon Storry and CBRE’s James Parry and Michael Andrews.

Liberty Place is a premium-grade office complex and comprises ANZ Tower, Legion House, 167 Castlereagh Street, a retail plaza and a car park.

The 42-level bank tower offers harbour and city views and incorporates a dual-street frontage, connecting Castlereagh and Pitt streets.

Blackstone is now looking to sell one of the towers above Westfield Sydney for more than $600m, after picking up the trio of towers for about $1.52bn in July.

Blackstone will sell off 100 Market Street in a play that could reap it more than $650m, via JLL and Cushman & Wakefield. The A-Grade complex fronts Castle­reagh Street, Market Street and Pitt Street Mall.

It is positioned above Westfield shopping centre and adjacent to Myer shopping centre. It has large, 2800sq m floor plates and houses Scentre and the corporate regulator.

The move helps defray Blackstone’s purchase cost and could see it take a quick profit. The US group will retain 85 Castlereagh Street, which houses investment bank JPMorgan and lawyers Allen & Overy. It will also keep the smaller 77 Castlereagh Street.

But its rapid move also shows just how much the market has jumped as cashed-up local and international players compete for assets. The strength of demand has allowed big buyers to pick up portfolios and then profitably carve them up.

Canada’s Oxford Property Group, via its Oxford Investa Property Partnership, has sold about $2.6bn worth of assets since taking the Investa Office Fund private last year. It will notch up more than $3bn of sales once more Sydney assets are sold.

The deal has put rising values on display. Blackstone and Ivanhoe Cambridge, the real estate arm of one of Canada’s largest pension funds, bought the tower stake when the building was worth about $1bn in 2015.

There are some notes of caution. JPMorgan in a note on Friday said one surprise from the recent REIT reporting season was the softening outlook for office rent growth in Sydney and Melbourne, despite continued tight occupancy. “Demand has tapered especially when technology and flexible work space providers are excluded and sub lease space has increased in Sydney,” JPMorgan’s Richard Jones said.

He said if sub lease space continued to grow, this could lead to a correction in rents, yields and capital values. But this lies in the future, with any softening in capitalisation rates only likely over the medium term, with the impact likely in 2020 in Sydney and 2021 in Melbourne.