Deutsche spends big on Brisbane office tower

Global funds giant Deutsche Asset Management has clinched a deal to buy a Brisbane office tower managed by Cornerstone Properties for a price in the mid-$120 million range.

The purchase of 313 Adelaide Street from a private family group comes as local and offshore funds look to Brisbane’s office market for the relatively high returns on offer, as pricing in Sydney and Melbourne soars.

Deutsche will join offshore investors including Credit Suisse Asset Management and Swiss pension fund AFIAA in owning Brisbane towers.

The purchase adds to the fund manager’s holdings in the Melbourne and Sydney office markets, where it has been active on behalf of clients since 2010.

The … purchase was struck at a yield of about 7% after CBRE and JLL offered the tower to select institutions in an off-market process

The sale of the 30-year-old refurbished building, which is about 80% leased to the Queensland government, is an important marker for Brisbane as vendors ranging from tycoon Kevin Seymour to QIC Global Real Estate are hoping to sell towers this year.

The Deutsche Asset Management purchase was struck at a yield of about 7% after CBRE and JLL offered the tower to select institutions in an off-market process.

The sales agents declined to comment on the deal but see a gradual improvement in the city’s commercial property sector as the drag from the resources downturn comes to an end.

The property at 313 Adelaide St was sold on a yield of about 7%

A CBRE presentation released this week argues that the “forward momentum” in Brisbane aligned with growth in the Queensland economy, although this is not expected to be of the same magnitude as the previous market cycle.

CBRE is forecasting demand for about 100,000sqm of office space over the next five years. The firm sees this as a “normal” level of demand, as opposed to the 40,000-50,000sqm of demand over the past five years.

However, Brisbane’s secondary office market is expected to remain under pressure, with vacancy rates in that tier expected to peak next year at between 20% and 25%, relative to an overall vacancy peak of 19-20 per cent.

Private and offshore investors are pursuing opportunities in the prime market, given the value offered by the city

CBRE director, capital markets, Flint Davidson says the divergence between Brisbane’s prime and secondary office stock continues to widen.

He says private and offshore investors are pursuing opportunities in the prime market, given the value offered by the city.

“Normally, you would see a 70 to 80-basis-point spread — or even 100 basis points — between Brisbane investment yields and those in Sydney and Melbourne. However, we’re currently running at a spread of 150 basis points,” Mr Davidson said.

JLL national director Seb Turnbull says the city is also being assessed by private groups on this basis and noted that developments sites are also being sought.

This article originally appeared on www.theaustralian.com.au/property.