Mirvac Sydney tower sale sets city benchmark

Mirvac’s flagship property fund has sold a half interest in a George Street tower in the heart of the Sydney CBD, in a move valuing the complex at more than $720m.

The Mirvac Wholesale Office Fund has sold a half interest in its office tower at 255 George St, Sydney.

Mirvac’s flagship property fund has sold a half interest in a George Street tower in the heart of the Sydney CBD, in a move valuing the complex at more $720m.

The group’s Mirvac Wholesale Office Fund sold a half stake in 255 George Street to Singaporean company Keppel REIT. The discounted sale breaks a long standoff between buyers and sellers in the top end of the office market.

A series of smaller transactions are underway in Brisbane, and even Melbourne has seen some activity, but big Sydney towers had not been trading.

The pricing of the deal shows that office buildings have fallen substantially in value since the Covid-19 crisis, but offers some hope for premium towers that are starting to see a recovery in rents.

The deal was brokered by Cushman & Wakefield and JLL.

Keppel said it had made an accretive acquisition of 255 George St, saying it was an iconic prime building located in Sydney CBD’s highly sought-after core precinct with high occupancy rate and long-weighted average lease expiry.

Keppel REIT paid $363.8m for its 50 per cent interest in the property, with the remainder continuing to be held by the Mirvac Wholesale Office Fund.

Koh Wee Lih, chief executive of Keppel REIT, said 255 George St was an A-grade office building with excellent ESG credentials.

“With the core precinct’s positive office market outlook and the property’s prime specifications, this DPU-accretive acquisition will enhance the quality of Keppel REIT’s portfolio and we are confident that it will continue to attract companies looking for quality office spaces in Sydney,” he said.

“Looking ahead, we will continue to seek opportunities within Keppel REIT’s portfolio for optimisation and capital recycling, while remaining disciplined in capital management, to capture opportunities with attractive total returns over the long term.”

Sitting opposite Bridge Street Light Rail Station and within walking distance to Wynyard Station, 255 George St features refurbished office spaces and lobbies.

The building spans a net lettable area of 38,996 sq m, comprising 38,805 sq m of office space and 191 sq m of retail space, as well as 188 car park lots. It is located along the prime end of George Street, and Sydney’s CBD has observed a flight-to-core trend with the core precinct outperforming other precincts in terms of vacancies.

The core precinct’s all-grade office vacancy was 11.5 per cent, the lowest among the four key sub-markets in the Sydney CBD, and leads the recovery with five consecutive quarters of declining office vacancies.

Sitting opposite Bridge Street Light Rail Station and within walking distance to Wynyard Station, it features refurbished office spaces and lobbies, as well as premium amenities including a wellness studio, a ground floor cafe, end-of-trip facilities, and multi-use flexible work spaces on the ground and mezzanine floors.

With a high committed occupancy rate of 93 per cent, the property has stable cash flows underpinned by a long lease term of 6.8 years with no significant lease expiries from 2024 to 2028. In addition, the property has a diversified tenant base from various industries, including the government, financial institutions, healthcare and information technology. The key tenants include the Australian Taxation Office and the Bank of Queensland.

The purchase of 255 George St is expected to generate a first-year yield that exceeds 6 per cent and Mirvac will provide some rent guarantees.

The purchase deepens Keppel REIT’s partnership with Mirvac, as they already jointly own 8 Chifley Square in Sydney and David Malcolm Justice Centre in Perth.

Mirvac Wholesale Office Fund said the sale was a 9 per cent discount to book value.

Mirvac’s CEO of funds management, Scott Mosely, said the sale “positions MWOF well to maintain its strong balance sheet, while retaining its weighting to the highest quality assets in the best Sydney and Melbourne locations”.

“We continuously reassess our portfolio to ensure it is well positioned and delivering the best outcome for our unit holders,” he said.

The 29-level, A-grade office tower located in the centre of Sydney’s CBD had a significant refurbishment in 2022.

The sale is subject to FIRB approval, with settlement expected in the next six months.