Mirvac to build $2bn Circular Quay tower in joint venture with Mitsui Fudosan

The support clears the way for Mirvac to get its landmark Circular Quay project underway – a sign of its belief in the top end of the office market.

Mirvac is advancing plans for a premium tower at 55 Pitt St Sydney.

Australia’s office market has received a boost with developer Mirvac winning the backing of Japanese heavyweight Mitsui Fudosan to build a $2bn tower at Sydney’s Circular Quay.

The move will allow the group to go ahead with the construction of its long-planned skyscraper at 55 Pitt St and shows the top end of the sector has come through the worst of the crisis that hit in the wake of the pandemic.

In a trading update on Friday, Mirvac said it had unconditionally exchanged a 66 per cent interest in 55 Pitt St to Mitsui Fudosan Australia and the deal was expected to settle that day.

The project has an estimated end value of about $2bn and will be delivered as a joint venture, with the co-owners retaining leasing risk on the development – although tenants have already agreed to make precommitments to taking space in a large portion of the tower. Mirvac will co-own, develop and construct the building, and will provide leasing, investment and property management services for the finished complex.

The transaction, foreshadowed by The Australian, shows that international capital is willing to back major office developments with Australian capitals viewed as part of Asia, where there has been a strong return to offices, rather than being grouped with the United States where tower values have fallen dramatically.

Once completed, 55 Pitt St is set to become a Sydney landmark with 63,000sq m of space over 55 storeys that will add to the Circular Quay skyline.

It will become part of the block where Lendlease’s One Circular Quay project is being developed and will also neighbour the Salesforce Tower.

Tenants are being drawn by the large floor plates and touches like an entrance with a 22 metre ceiling and water wall, native species and extensive biophilia. There are also 1,200sq m of wellness and fitness facilities aiming to replicate a hotel experience.

Mirvac, led by chief executive Campbell Hanan, is confident of investing in the top end of the offices sector. Picture: Nikki Short

Mirvac is planning co-working spaces on levels 40 to 42 and, in a nod to its position on Sydney Harbour, levels 54 and 55 will sport rooftop dining and gardens. In keeping with the group’s focus on sustainability, the fully electrified building will be net zero carbon in its operations.

Office markets have been slugged by high vacancy, the shift to work-from-home and, most tellingly, higher interest rates that have cut into asset values as capitalisation rates have blown out. This has prompted a series of writedowns on the value of office buildings and many sales have been struck at discounted levels.

But Mirvac is pressing ahead with the project partly as it has been able to win key tenants including lawyers, financial services and technology companies. Big developers say that tenants are demanding space in new, green buildings as they look to bring staff back to work and boost productivity.

The Australian group’s integrated model of building its developments will help the project defy spiralling building costs and rising construction wages that have hit the industry.

Mirvac has also been selling off older buildings as part of a shift in focus to boost its portfolio and the developer also confirmed its earnings guidance, with the Sydney project and other sales a key to hitting forecasts.

Like other property companies, Mirvac has been cautious as conditions remain difficult for launching new projects, but having committed to 55 Pitt Street, it will become one of only a few new towers over the remainder of the decade in Sydney.

Its competitors include Charter Hall’s Chifley South, which is well underway, and a proposal for the world’s tallest hybrid timber tower by the Milligan Group, supported by Lendlease.

The Sydney office deal was brokered by real estate agents Flint Davidson and Stuart McCann of CBRE and Ben Schubert and Paul Roberts of Knight Frank.

The transaction shows that Mirvac chief executive Campbell Hanan is committed to both major projects and the company’s model of capital partnerships. But many parts of traditional commercial property remain tough and the company is shifting further into the living sectors like build-to-rent, where it was a pioneer, and land lease estates.

Mirvac is moving on its $1bn asset sales program and has now sold 367 Collins St in Melbourne to Hong-Kong-based PAG. It has sold the Aspect South Industrial precinct in Sydney into the Mirvac Industrial Venture, with Australian Retirement Trust acquiring a 49 per cent interest, bringing the total expected end value of the overall venture to about $1bn.

The residential business is also performing with lot settlements expected to be about 2,400 lots, and healthy buyer sentiment and demand is overcoming the higher interest environment. Mirvac reaffirmed guidance of operating earnings per stapled security of 14c to 14.3c this financial year and a distribution per security of 10.5c.