Exceed Capital taps investors for $25.5m office tower in Adelaide

Brisbane-based Exceed Capital has made its first foray into the Adelaide market, continuing its strategy of buying up unloved office buildings.

Exceed Capital is raising funds for the purchase of the office tower at 19 Grenfell St in Adelaide.

Brisbane-based Exceed Capital has made its first foray into the Adelaide market, continuing its counter-cyclical strategy of buying up unloved office buildings that have been heavily discounted due to the impact of higher interest rates and hybrid working.

The fund manager is tapping investors for a $25.5m purchase of an office tower on Grenfell St in the Adelaide CBD, promising annual returns of more than 10 per cent.

Vendor Shakespeare Property Group paid $39.2m for the 19-level tower in 2016.

It’s the latest in a string of office acquisitions by Exceed Capital, amid a sell-off by the listed real estate investment trusts left jittered by rising interest rates and vacancies, tumbling valuations and uncertainty over future office demand.

Exceed Capital managing director Vaughan Hayne said the firm was looking for more opportunities across capital city office markets after recent acquisitions in Brisbane and Gold Coast.

“We see a big opportunity in office space at the moment, especially as some of the listed companies are selling off some of their non-core assets,” he said.

“We’ve got a lot of assets on the eastern seaboard, but we’ve wanted to spread a little bit wider and we were aware that Adelaide had a strong market in the office area.

“In recent months, it’s had the highest net absorption rates across Australia, and it’s also got some very good metrics around the actual staff percentages working in the CBD – the second highest in Australia at about 88 per cent. It’s got really good fundamentals.”

The Adelaide acquisition follows Exceed Capital’s $37m purchase of a three-storey office property in Toowong, in inner Brisbane, in June, and a $40m deal for an office building in Robina on the Gold Coast last September.

It’s looking to raise $20m in equity from investors for the Adelaide building, and $12.75m in debt finance.

The surplus funds will be used for a multi-million upgrade designed to attract tenants into close to 50 per cent of the building that is currently vacant.

Upgrades will include a new foyer area, speculative fit-outs and a potential expansion of Mexican restaurant Sazon’s space on the ground floor.

Improvements will be made to the end of trip facilities, while the facade will also be reviewed ahead of a potential redesign.

Mr Hayne said he was confident that with some investment, the building would appeal to a broad range of tenants, given its location in the core of Adelaide’s CBD office market.

“At the moment, you’ve got approximately 48 to 49 per cent vacant at the moment, and we’re not scared of that,” he said.

“We’ve had buildings here on the Gold Coast – an office building at Varsity Lakes – where we had 45 per cent vacancy in the first 12 months of Covid, and we turned that around. We gave ourselves 24 months to lease it up, and we got it fully leased in 12 months.”

Shakespeare was hoping for offers in excess of $40m when it listed the Grenfell St building for sale through Cushman & Wakefield at the beginning of last year but a buyer could not be found.

The off market deal with Exceed Capital was brokered by Max Frohlich and Ryan Mills of Knight Frank.

Mr Hayne said he was exploring opportunities for more acquisitions in the Adelaide office market.

“I can assure you that this is our first transaction in Adelaide, but it won’t be our last,” he said.

“In the CBD we’ve seen some growth ingredients, and we see an opportunity between B and A-grade office space – to position ourselves somewhere between there and create an attractive opportunity for prospective tenants.”