Charter Hall backs office recovery with $750m portfolio move

Property funds manager Charter Hall is defying sceptics about the future of office buildings and is chasing one of the largest office portfolio purchases of the year with a $750m deal in its sights.

Charter Hall has a trust specialising in long-leased properties

Property funds manager Charter Hall is defying sceptics about the future of office buildings and is chasing one of the largest office portfolio purchases of the year with a $750m deal in its sights.

The David Harrison-led group is circling the AIP portfolio, which includes buildings across Sydney, Melbourne and Canberra, which are marked out by their long lease terms which will see them through the aftermath of the pandemic.

The values of even top office towers had come under pressure as they face short-term issues as tenants tried to cut back space and some looked to sublease some of their holdings.

This has driven up incentives and prompted forecasts of rising vacancies this year but big landlords are punting that workers will return to their desks and drive the longer term growth of cities.

Charter Hall has been in the camp that has rejected talk that a more permanent shift to working-at-home is underway and has instead argued that companies will need more space to comply with distancing rules.

The office sector had already seen a pick up in activity this year with wealthy buyers snapping up towers along the eastern seaboard but the Charter Hall play is of the greatest magnitude and would bolster confidence.

The move follows in the wake of EG Funds Management and Lendlease’s managed funds arms carving up the five asset SwissRe portfolio that is going through for more than $600m.

The latest portfolio was assembled by South Korea’s AIP Asset Management Co. which has hoped to team up with Japan‘s Tokyu Land Corp. to launch a real estate investment trust in Singapore last year.

But the planned initial public offering, that was to raise about $S400m ($385m) did not go ahead, partly as the market for property trust IPOs in Singapore has dampened.

The Korean house, AIP, is mainly focused on Europe but the assets in play in Australia include the Australian Red Cross headquarters in Sydney, the Australian Taxation Office in Albury and the Louisa Lawson Building in Canberra.

The move also show the advantage that the Korean group, then running under the FG Asset Management moniker, had in riding the cycle as it took control of four office assets between 2014 and 2016.

The buying included its $225m purchase of the federal government-occupied building in Canberra and the $156m ATO office in Melbourne’s Box Hill. It also bought the ATO complex in Albury for $64.8m and the Australian Red Cross Blood Service complex in Alexandria for more than $113m.

Charter Hall has a trust specialising in long-leased properties that could suit the assets but the group has the capacity to carve up portfolios and its expanding PFA vehicle has also specialised in government assets.

Colliers International provided has advice but the firm and Charter Hall declined to comment on Monday with some insisting a deal was yet to be done.

Big property portfolios are shifting showing the depth of demand for offices.

As part of the AMP Capital move, Lendlease is buying an office tower in Melbourne’s La Trobe Street for about $200m via its Australian Prime Property Fund series.

The NSW portfolio includes two assets in Sydney — stakes in 50 and 60 Carrington Streets – and 32 Walker Street in North Sydney, that are going to EG.

Individual tower deals are also picking up with syndicates making the deepest inroads. Brisbane has been the busiest market and buyers have been willing to put in their own capital in order to get deals done indicating their confidence that the market will come back.

Local investment house Fortius is paying about $210m to buy a building in the heart of Brisbane from international group LaSalle Investment Management. Another offshore group, Savills Investment Management, also forked out $151m an office block in the Sydney suburb of Mascot.

The deal-making shows both large office investors and wealthy local players are back buying office blocks as staff return to their offices and a recovery is expected despite a tough period of higher vacancies and rising incentives to attract tenants.

But parts of corporate Australia, particularly Big Four banks, are expected to cut their office space, though other groups, including investment banks are taking space.