Big international players chase office market recovery as workers return to city towers

German financial institution Allianz emerged as the party in due diligence on a half stake in the Darling Quarter complex in Sydney, which houses Commonwealth Bank.

Cities are in for a big return of workers as billions of dollars worth of capital is being outlaid by international institutions backing the best city towers.

The office blocks that were once considered to be at risk from the pandemic are now flourishing in end-of-year trading as big buyers stock up as corporate Australia returns to work.

In one of the largest deals of this year, a move by Investa to recapitalise an unlisted trust that owns a $2.2bn collection of some of the nation’s best buildings has attracted global bidders, with Hong Kong-based Link REIT contesting the portfolio.

The process, being handled by real estate agency CBRE, remains in train and would bolster confidence in top-end office values and help spark new projects as developers expect prices to rise as confidence returns.

The Investa buildings include Deutsche Bank Place at Sydney’s 126 Phillip St and Melbourne’s 567 Collins St, along with other premium city assets. The group has been seeking a partner to take an interest alongside Canadian group Oxford in the buildings.

A stake of up to 75 per cent was marketed by CBRE’s Flint Davidson, James Parry, Stuart McCann, but they and the parties did not comment.

Investa’s move shows that ongoing competition at the very top end of the office market for the best assets has come through the coronavirus crisis.

Just this week, German financial institution Allianz emerged as the party in due diligence on a half stake in the Darling Quarter complex in Sydney, which houses Commonwealth Bank. The stake is being sold by Middle Eastern fund ADIA.

The CBRE team is also handling that near-$700m deal, which could show a sub 4 per cent yield, once completed.

Interest in offices has been sparked as parts of corporate Australia mandates a return to the workplace and others adopt hybrid working arrangements with offices at their centre.

The big money is chasing top buildings and preparing for new ones that can get workers back in after the shock of the pandemic.

126 Phillip Street, Sydney, is part of one of Australia’s largest ever real estate deals, spanning more than $2bn in city office buildings.

Charter Hall’s $9bn Prime ­Office Fund last week snapped up 383-395 Kent St in the Sydney CBD for $385m from Dexus, effectively forming a site for a future skyscraper.

Lendlease this week put its stamp on the North Sydney office market with the acquisition of a boutique office development in Blue St and the listed Abacus is making a play in the heart of Sydney in separate deals worth close to $600m in total.

Lendlease’s funds unit is buying from the private Third.i Group a project that will be completed in 2023 when the tenant rush is expected to be in full swing. It drafted in a capital partner, Singapore’s Keppel REIT, which bought the planned A-grade tower for $327.7m. JLL’s Paul Noonan and Luke Billiau and CBRE’s Scott Gray-Spencer handled that sale.

Meanwhile, Abacus is buying a building being sold by private ­equity group Blackstone in the heart of Sydney. It is purchasing 77 Castlereagh St for about $250m via JLL and McVay’s Rob Sewell and Sam McVay.

The push is for assets sporting the latest technologies and developers are also catching on in the city with Toga proposing a skyscraper beside Sydney’s Central Station and tycoon Lang Walker and Stockland promoting separate multibillion-dollar projects in the city on Wednesday.

Property Council chief executive Ken Morrison is bullish. “We’ve got amazingly high vaccination levels, that’s got to account for a hell of a lot. It’s going to make us much more resilient against lockdowns and make people much more confident about going about their normal lives,” he said.

“I think the economy (next year) will be rebounding very strongly. Companies and businesses will want to be getting back on deck and then taking those ­opportunities and I think that will include moving to a new normal of their workplace operations.”