Investa fund to offer slice of $650m-plus Sydney office gem

The offer of the stake in the tower is a sign of rising confidence at the top end of the market.

Investa Commercial Property Fund is selling a 50 per cent stake in 135 King Street, Sydney.

The Investa Property Group’s flagship office fund will bring a half-stake in 135 King Street to market as the top end of Sydney’s office market wins over big investors.

The interest is being offered by the Investa Commercial Property Fund, which is looking to bring in a partner on the $650m-plus building that also includes a major retail centre.

While the office market has undergone a harsh reset across Sydney, tenants are now chasing top end space and capital is also focusing on this premium end of the market.

Big sales unveiled this year include German group Deka swooping on 333 George Street for about $395m and Charter Hall and one of its wholesale funds taking a half-interest in 52 Martin Place.

Other transactions also showing the strength of this part of the market include Cbus Property buying a half-stake in 5 Martin Place from Dexus and its office partner, Canada’s CPP Investment Board.

The run of transactions shows that liquidity has re-emerged at the top of the market, despite the woes of lower-grade assets and those outside the city’s core district. There has been a pricing reset, which has been driven by higher capitalisation rates.

Real estate agents Knight Frank and JLL are handling the offer.

Preliminary images for selection and artwork layout only.

ICPF fund manager Brendan Looby said 135 King Street was an A-grade building in Sydney’s core fully owned by the wholesale fund. “As the fund’s largest asset, a selldown of 50 per cent reduces our largest asset exposure to around 6 per cent, from 12 per cent, and releases capital for future investment opportunities,” he said.

ICPF has held an interest in the asset since 2014, and it has a high occupancy of about 95 per cent as at the end of June. The Investa-run fund first took a half-stake in 2014 when then co-owner Stockland nominated ICPF as the buyer of a stake being sold by the Colonial First State’s Private Property Syndicate.

Investa controlled the office component of 135 King, while Stockland handled the retail. In 2019, Stockland then sold its half-interest in the complex to the Investa fund in a deal worth about $340m.

The block has super prime retail frontage to Pitt Street Mall, and includes H&M’s flagship Sydney CBD store. The building has a net lettable area of about 32,500sq m over 29 levels. Other major tenants include JustCo and the federal government. It has strong environmental credentials, including a 5.5-star NABERS Energy rating.

The Investa fund is a core prime office trust and concentrates on premium-grade office assets in the major Australian CBDs. It beat its benchmarks last year, but like all such trusts was hit by writedowns as capitalisation rates lifted. But with about $6bn in assets under management, it remains well-diversified and has 16 assets all up, including premium buildings like the Sixty Martin Place tower.

The Investa fund’s latest report showed it was weathering the storm that has hit the broader office market. It said the market continued to adjust to macroeconomic conditions, with financial markets again concentrating on interest rates and inflation and their flow-on effects to equity markets, bonds and real assets.

Investa expects supply and demand characteristics to be the key driver of CBD office markets, with prime grade assets offering high amenity and environmental credentials the best-placed to perform.

The fund has been busy on the leasing front, striking a 13-year pre-lease to the Australian Securities Exchange, which will shift its headquarters to 39 Martin Place in Sydney.

It also agreed on terms with law firm Corrs Chambers Westgarth at 120 Collins Street in Melbourne.

Originally published as Investa fund to offer slice of $650m-plus Sydney office gem