Fortius backs Brisbane as funds swoop on offices

The buyers are back for offices and wealthy investment houses are setting the pace

Fortius is hoping that the building it is buying at 307 Queen Street can deliver returns of 12 per cent over the next five years.

Property investors are backing a recovery in the office market, with local investment house Fortius to pay about $210m to buy a building in the heart of Brisbane from international group LaSalle Investment Management.

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.

The leasing market remains tough and parts of corporate Australia, particularly large banks, are looking to cut their office space, but investors are backing the sector in the belief that the best buildings could benefit as tenants seek them out.

The market had been hunting for a direction in the wake of the coronavirus crisis. While a series of big-ticket deals on office towers occurred even in the middle of the pandemic, many involved shared building ownerships with one group buying out another, or had been put in train previously.

A rush of fresh purchases is establishing that high-quality office buildings will hold their values and many of the buyers are hopeful they can reposition them to capitalise on the recovery.

Brisbane office towers appear to be in a particularly sweet spot as the city shrugs off concerns about the pandemic, with about $1bn worth of office blocks changing hands. Melbourne has been relatively quiet and many of the properties trading in Sydney are in the suburbs.

In a sign that wealthy local investors are driving the recovery, many buyers are property fund managers, including Cromwell, which has also bought in Brisbane, as investors chase higher yields than they get from banks.

In the latest play, funds house Fortius is hoping that the building it is buying at 307 Queen Street can deliver returns of 12 per cent over the next five years. It is already 93 per cent occupied by professional services, finance and consulting firms and is one of the best positioned in the city’s coveted “Golden Triangle” precinct.

The building has 19617sq m of lettable area over 25 floors and its diversified tenancy profile is underpinned by a three-and-a-half year lease term.

Fortius has told prospective investors there could be upside through leasing vacant areas and redoing layouts. The trust it is marketing would spin off 8 per cent average distributions, but the firm declined to comment.

The purchase also shows an uplift from the $142m that LaSalle picked up the tower for in 2017.

The latest deal was brokered by Knight Frank’s Justin Bond, who was unavailable for comment.

But the city is busy. Real estate investor and manager Cromwell last week bought 545 Queen Street for its unlisted direct fund. It paid $117.5m for the A-grade office building at the entrance to the Golden Triangle.

It bought the 13,363sq m building from Axis Capital, which had picked up the former Flight Centre headquarters for just over $70m from GPT in 2017.

“In the current interest rate environment, it’s challenging for investors to find opportunities that meet their income needs,” Cromwell’s head of retail funds management, Hamish Wehl, said.

Brisbane-based Marquette Properties also snapped up the Gold Tower in Eagle Street from a Dexus-managed fund for $285m. Marquette said the deal reflected its confidence in the outlook for Brisbane’s CBD.

The sale was struck at a 1.8 per cent premium to book value, with Macquarie analysts saying it continued a run of office purchases done at a premium to book value.

Marquette targets strategic assets in Queensland and raised funds from wealthy investors to back the purchase.

“Despite the ongoing long-term uncertainty associated with the COVID-19 pandemic, we have enabled more than 150 Australian families to invest in 10 Eagle Street and look forward to delivering strong returns as Brisbane continues to grow as a city and a city to invest in,“ Marquette managing director Toby Lewis said.

Finance house Ashe Morgan also bought a block at 310 Ann Street for $210m, again with the backing of wealthy investors.

One of the next big tests for the market is the offer of 179 Turbot Street in Brisbane’s CBD by investment manager Investa. The 27-level office building could go for about $200m.