Keppel aims for Sydney tower stake as office market reset looms

The deal on a $700m-plus Sydney tower shows that buyers are returning to office markets – but only at a lower prices.

Singaporean group Keppel is poised to strike one of the year’s largest office deals as it targets the purchase of a half interest in a Sydney skyscraper from a ­Mirvac-run fund that would value the tower at more than $700m.

The stake in the building at 255 George St is being sold by the Mirvac Wholesale Office Fund, which the listed property company picked up out of the AMP Capital empire and it must meet redemptions from departing investors later this year. The impending sale is significant not only for its size but it is also ­expected to lead to a broader re-rating of values across the office market, with the deal being struck on a yield around the 6.25 per cent mark. This rate for a high quality tower would force other office landlords to cut the value of their assets but not to the deep extent feared after a series of large blocks did not trade last year.

Keppel is chasing a half interest in 255 George St.

Big landlords put a series of assets on the market in the hope that offshore capital would back the theory that leasing markets would stabilise and interest rates would start to come down.

But finalising large transactions has proven tough with some landlords instead working on leasing assets ahead of bringing them back to market.

If the value of the George St tower was applied across the board to office portfolios, it could lead to writedowns on buildings held by large rivals, even those who have already cut values in the wake of the coronavirus crisis.

More buildings that are hitting the block – including skyscraper assets being offered by Canada’s Brookfield and listed company Dexus – will help set market values.

Office blocks remain under pressure from several forces, including working from home, sluggish demand for space and some new supply coming online as well as sublease space lingering in the market.

For Keppel, the purchase would signal its longer term interest in owning top quality assets which it believes will best ride out the storm in the office market.

It owns other city towers and educational assets. Buying a 50 per cent interest in the building, best known as the former NAB House would give it an opportunity to up its holding in future.

Real estate agencies Cushman & Wakefield and JLL are handling the offer.