Sentinel drives into city tower purchases as property cycle shifts

A new deal shows investors are still keen on well-placed buildings in capital cities — and they can pick them up at a discount.

Sentinel Property Group chief executive Warren Ebert

Warren Ebert’s Sentinel Property is stepping up its strategy of making counter-cyclic plays for ­office blocks and is buying its second Canberra site, for more than $72m, in a sign of confidence in the market.

The move shows that investors are chasing the safety of buildings leased to governments and are confident that major agencies won’t dramatically shrink their ­offices despite many public servants working from home.

Sentinel is bullish about the prospects of the A-grade executive building as it is leased to a federal government department in Canberra’s premium parliamentary precinct. It has launched a trust to buy the asset at 18 Can­berra Avenue, Forrest, from Charter Hall fund, at what it estimated was 34 per cent below the replacement cost.

Sentinel told investors that the block offered an attractive forecast distribution of 8 per cent net per annum and it is buying on a purchase yield of 8.56 per cent, with annual rent increases of 3.5 per cent. Colliers agents Matthew Winter and Paul Powderly brokered the sale.

The vendor, Charter Hall, had picked up the asset for about $98m in 2021 from developer Doma and the price is understood to be at the selling fund’s December 2023 valuation. The deal shows the broad fall off of office values across the market in the wake of interest rate hikes.

While Canberra values have been hit over recent years, the deal could suggest more investors are making a cautious return to select office markets, with buyers including Aware Super and Forza Capital also active.

The purchase came after Sentinel bought Scarborough House in the Woden Town Centre for $83m three years ago. The latest buy showed that Sentinel was back in the office market nationally after it picked up 60 Edward Street in the Brisbane CBD’s Midtown precinct for $72m last month.

The Canberra property is a purpose-built block, called the Doris Blackburn Building, and was developed by Doma in 2012. The 9646sq m four-level building is less than 500m from Parliament House and has the strong environmental credentials required by government departments.

Sentinel chief executive Warren Ebert said the group was able to secure the property after a $40m capital raising. “There continues to be strong investor demand for high-quality office assets,” he said. “Canberra is Australia’s fourth-largest office market and boasts the lowest vacancy rates across all capital cities of 8.3 per cent. Over the next five years, 90 per cent of new office space currently in development is already pre-committed.

“With 2.9 per cent unemployment and a high 70.64 per cent workforce participation rate, Canberra continues to outperform the national average.

“There is also strong infrastructure investment, with the ACT and the federal governments having committed $1bn to Canberra’s light rail expansion.”

Canberra’s office market is close to seeing another major acquisition as Growth­point Properties Aus­tralia’s funds business wraps up the purchase of a $90.1m building from investment group ISPT.

Growthpoint’s funds unit is buying 2 Constitution Avenue, a refurbished office building near the parliamentary precinct.