MEC to take slice of $2bn Salesforce tower

The recapitalisation of the city’s highest office block shows demand is rising for offices, but big-ticket sales are still to come.

The 56-storey, 263m Salesforce Tower is Sydney's tallest commercial building

Japanese investment partner MEC Global Partners Asia is taking a slice of the $2bn Salesforce Tower complex in Sydney in a key marker for premium office values as the cycle shows signs of recovery.

The firm is raising funds so that it can take up part of the 30 per cent interest in the tower put up for sale last year by sister company Mitsubishi Estate Asia, which was an early backer of the development of Sydney’s tallest office skyscraper.

In the transaction, MEC will take an interest in the tower of more than 10 per cent, quietly raising funds to back the purchase in Asian markets.

MEC has a strong record in Sydney. It worked with property funds house AsheMorgan to acquire 60 Margaret Street with the group, and they are now planning to revamp the MetCare Centre at the foot of the building.

Regional institutions are keen to gain an exposure to the top end of the recovering office market and, while it is not an outright sale, the metrics of the deal will be closely watched.

Observers said a transaction was being struck in the mid to high 5 per cent range, giving investors a guide to the value of premium towers in Sydney, though the final outcome may depend on market conditions.

The offer of the stake in the tower was seen as a bellwether for the health of top-end office skyscrapers and comes as the office sector shows more signs of life as large players again invest in the premium part of the market.

There is a race on for premium space in Sydney, with leasing deals being struck by a series of law firms at the nearby 33 Alfred Street and in Charter Hall’s under-construction Chifley South tower and Mirvac’s 55 Pitt Street.

Salesforce Tower in Sydney comprises 53 office floors spanning 59,916sq m.

The next wave of super-towers is not due to come on line until the next decade, with rival projects by Lendlease and Dexus still in planning and the towers above a new city metro station not likely to be delivered before 2034.

Mitsubishi Estate Asia and China’s Ping An Real Estate backed Lendlease’s development of the premium-grade tower in 2016, and it has since become one of the best performing towers in Sydney.

The transaction comes at a time when there is little stock on the market, although stakes in some major buildings have traded. Most notably, Ashe Morgan bought a half-stake in a Kent Street tower from a Dexus fund for about $285m.

Mitsubishi Estate Asia has been one of the largest investors in this part of the property cycle, buying up interests in high-profile projects, including the neighbouring One Circular Quay development and Barangaroo, as well as striking ventures across almost every sector of the market including land lease, logistics and residential development.

The Japanese dealmaking also shows optimism about recovery in the market, as Ping An in 2023 went to market with its 50 per cent stake in the tower – but that is yet to change hands.

The last trade in the tower was when developer Lendlease sold its 20 per cent stake to its own APPF Office fund at the start of 2022, when the office market was more buoyant ahead of interest rate rises.

Sydney has since seen a slight pick-up in big sales, with Mirvac selling a two-thirds stake in the planned $2bn 55 Pitt Street tower to Japan’s Mitsui Fudosan, while Cbus Property bought a half interest in 5 Martin Place and BGO, aided by Investa, bought 10-20 Bond Street.

CBRE and Emerge Capital were marketing the sale of the stake in the 180 George Street tower, but they and the parties ­declined to comment.

The soaring 180 George Street tower is the centrepiece of Sydney Place at Circular Quay. The precinct is benefiting from more than $10bn in private investment, including the Sydney Waldorf Astoria Hotel and One Circular Quay, with these projects due to complete in 2026, with billionaire Andrew Forrest and his family buying the luxury hotel.

Salesforce Tower comprises 53 office floors spanning 59,916sq m, a ground floor lobby and retail plaza, and three levels of basement parking. Aside from the namesake anchor tenant, it also houses JLL and The Executive Centre.