Dexus to check out of Martin Place tower

Dexus is close to striking one of the country’s largest office deals this year by selling a half interest in the landmark 5 Martin Place tower in the heart of Sydney.

Listed group Dexus is close to striking one of the country’s largest office deals this year by selling a half interest in the landmark 5 Martin Place tower in the heart of Sydney’s central business district in a move that would value the whole complex at just over $600m.

The stake in the skyscraper is held by the office partnership Dexus has with Canadian group the CPP Investment Board and that vehicle is now close to selling its interest to co-owner Cbus Property.

The deal would provide evidence of the fall in office values as the tower is trading for about $100m less than it was valued at overall at the end of last year. But it also shows there is demand from key buyers, including local superannuation funds and deep-pocketed international investors.

Office landlords have been hit by a rise in vacancy levels and rising interest rates which have cut into the values at which buildings are held. But they say that the top end of the market will be most insulated from falls and be best positioned to win new tenants.

Taking full control of the tower would be a switch for Cbus Property from its usual practice of developing new buildings as it is doing in major projects in Brisbane, Melbourne and Perth. But it shows a belief that markets are beginning to bottom out and that more capital will flow into the market.

Ross du Vernet, Dexus CEO.

The companies have been in talks about the office tower, which houses law firm Ashurst, financial services company Challenger and co-working company WeWork for months.

The law firm is shifting to Investa’s 39 Martin Place development. It has committed to 10,000sq m, or a third of the offices earmarked for airspace over the Martin Place Metro, between Castlereagh and Elizabeth streets.

Once the deal is finalised Cbus Property would pay a price that would show a yield of about 6.1 per cent, which industry sources said was the “new normal” for top grade towers.

Adam Woodward and James Mitchell of Colliers are handling the transaction but the agency and the parties declined to comment.

The tower has 19 levels of premium office space with 1,100-2,400sq m typical floor plates. The upper floors benefit from a full-height glass facade that fills the workspaces with natural light and it sports views over Martin Place and the CBD.

The property includes a new tower with an 11-storey central atrium ‘light well’ and triple height foyer. 5 Martin Place’s heritage component has been updated while retaining features such as the sandstone and marble facade and marble clad stairs.

Dexus last week said its overall valuations for the year were down 9 per cent, with offices down 11.3 per cent.

Citi analysts said the company’s $1.3bn write down in book values was driven by higher capitalisation rates and discount rates, partially offset by market rental growth.

They said that global investor sentiment surrounding office exposures remains challenging and said that the Australian office market was not yet at the inflection point.

But sales by Mirvac and other large companies show that the bottom is close for big towers even in a tough market.