Deka snaps up Sydney CBD office block as premium end of market shines

The premium office market has been bolstered by German group Deka swooping on 333 George St in the heart of Sydney for about $395m.

The Charter Hall sale of 333 George Street implies a rate of about $27,000/sq m and shows that investors are chasing buildings in Sydney that sit between Martin Place and Circular Quay.

The top end of the office market has been bolstered by German group Deka Immobilien swooping on 333 George St in the heart of Sydney, with the sale by two trusts run by property funds house Charter Hall to reap them about $395m.

While the deal is still subject to regulatory approval, the pricing shows the premium part of the office market has come off its peaks as interest rates have hit building values, but there is still strong demand for assets from international players for top city assets, which has put a floor under this ­segment.

While a number of suitors had circled the building over the last year, the final transaction showed a yield of about 5.35 per cent and was a slight dip from its value of about $420m in June last year.

The transaction supports the belief of Charter Hall that the best assets will hold up through the cycle, even as lower grade and suburban buildings come under pressure.

The listed landlord has argued that top buildings will attract both tenants and capital even as some parts of the office market struggle. Many suburban buildings are feeling the pinch from high vacancy levels and the push by tenants towards higher quality space in the central business district.

A series of property sales by rival groups including Mirvac, Dexus and Brookfield signalled the start of the decline in office values, and deals struck by exiting Chinese companies on lower grade towers, and in Melbourne’s beaten-down central business district, show that lower grade assets are still falling fast.

But landlords say that modern buildings in core locations have held up and noted some of the buildings that have been sold at poor values reflect either risks of tenants moving out or the fact they are older and have been ­surpassed.

333 George St in Sydney CBD.

The Charter Hall sale implies a rate of about $27,000/sq m and shows that investors are chasing buildings in Sydney that sit between Martin Place and Circular Quay, rather than in the less desired western corridor. The building has a relatively short lease term, with Deka having enough confidence in demand for top spaces to buy an asset that could attract new tenants in coming years.

The Sydney deal was brokered by Cushman & Wakefield, but the agency and vendor declined to comment.

For the German company, the buy represents another foray into the Australian market at a time when large local institutions are all but out of the market. The value of the top end of the office market has held up partly as foreign capital has poured into local markets, which are seen as a safe haven at a time when US and European markets have plunged.

The George St building has 15 levels of A-grade office space and counts WeWork and law firm Clyde and Co. as major tenants. The building spans 14,508sq m and is owned by Charter Hall’s Direct Office Fund and the Charter Hall Prime Office Fund.

The German group is an experienced investor in Australia and bought in the wake of the pandemic when interest rates were much lower. In 2020, it snapped up the 22 level A-grade office tower at 452 Flinders St in Melbourne from a Dexus-managed fund for $454m.

That was taken as a sign that top buildings held up even during the pandemic that saw Melbourne locked down, though investor sentiment towards the city has since soured.

For Deka, the latest purchase is a sign of its confidence in the local market in which it is already a big player. The group picked up another Brisbane tower in 2020 for $380m and holds buildings in other parts of Australia.