Charter Hall breaks Melbourne office drought

More than $250m worth of towers are trading in the Victorian capital as market values are reset.

Melbourne’s CBD skyline looking across the MCG. Picture: Alex Coppel.

The drought of big ticket office sales is finally breaking across the country with Charter Hall selling a Melbourne office block for $155m to soft drink scion Harry Stamoulis and more sales being put in train.

Listed companies and big institutional funds have been under pressure to sell off assets as they look to pare back debt as they face rising office vacancy levels and higher interest rates.

Charter Hall has held the line against discounting and said the move was part of a longer-term plan to reposition the fund towards newer assets.

The sale also indicates that a window has opened up for year-end deal making as vendors have started to meet the market and private players and funds houses are looking to buy.

Melbourne had lagged other capitals with investors earlier chasing office blocks in the resources capitals of Brisbane and Perth as they were less affected during the pandemic and by the shift to working-from-home which is slugging offices in the southern states.

Sydney had already seen activity, with Quintessential and Hong Kong-based private equity house PAG swooping on CBD towers sold by Dexus, and assets being sold by Investa and Mirvac in due diligence.

Charter Hall’s unlisted Direct Office Fund sold 1 Nicholson St to property developer and former Gold Medal soft drink scion Mr Stamoulis. The manager has not disclosed recent valuations but it is understood that the fund has no immediate redemption window, instead it is exiting an older building at a slim discount, and focusing on modernising the remainder of its portfolio.

The B-grade Nicholson St building was the first glass wall skyscraper built in the city and is opposite Parliament Gardens. The 19-level tower spans 16,970sq m and is leased to seven tenants. Positioned between Melbourne’s two best office precincts, the building has a 4.8 year weighted average lease expiry and the chance to reset rents in the short to medium term.

Cushman & Wakefield’s Leigh Melbourne and Nick Rathgeber and CBRE’s Kiran Pillai and Scott McGlone brokered the deal.

JPMorgan said that there was a more cautious approach by investors across the capital markets that has led to reduced office sales volumes. “The bifurcation between prime and secondary is continuing to play out and the flight to quality assets by tenants is evident across the office sector,” the bank’s analyst said.

But more deals are already in play. Fund manager Sentinel Property Group is in due diligence to buy Garda Property Group’s two buildings at Botanicca Corporate Park on Swan St in Richmond, Melbourne.

Garda marked Botanicca 7 and 9 as held for sale with a collective independent value of $110.5m in its most recent accounts. Building 9 was completed in 2019. Building 7 was completed in 2009.

They are expected to sell for a price approaching $100m after a campaign by agents Dawkins Occhiuto. Sentinel put the yield at 9.31 per cent, although one of the buildings had an occupancy level of about 73 per cent, the accounts said. Sentinel is launching a trust to hold the buildings and is billing the acquisition as counter cyclical and told investors it was buying at a price well below book value.

More asset sales are to come as Dexus and other large groups have other large towers on the block and appear more willing to meet the market.