Growthpoint to launch fund on back of $90m Canberra building play
The office building at 2 Constitution Avenue in Canberra has been refurbished.
Canberra’s office market could see a breakthrough office acquisition, with Growthpoint Properties Australia’s fund business targeting the purchase of a $90.1m building from superannuation fund-backed investment group ISPT.
Large wholesale funds have been offloading properties ranging from office blocks to shopping centres to fund redemptions and keep their gearing levels in check as values slide on the back of higher capitalisation rates.
While shopping centres led the way down as they took hefty writedowns, they have now been trading at a relatively brisk pace. By contrast, office landlords have been slow to take the hit and relatively few blocks traded. But they are now taking a more realistic view of the value of their assets in order to get them away.
Growthpoint bought the Fortius funds business in 2022 and has been looking for ways to grow it, despite high interest rates.
It is now looking to buy 2 Constitution Avenue, the refurbished office building near the parliamentary precinct and Lake Burley Griffin.
The group told prospective investors in its planned unlisted Growthpoint Canberra Office Trust that it was in exclusive due diligence on the block, with the price showing an estimated yield of 9 per cent.
The deal is being handled by real estate agency CBRE, but it and the parties declined to comment.
The fund is forecast to deliver 9 per cent average distributions and a 15–16 per cent internal rate of return over its five-year investment term.
The building is being sold by the ISPT Core Fund, which has sold shopping centres and has also offered a Sydney office block.
Growthpoint plans to raise $54m to back the trust’s purchase, saying it was undertaking deep value buying, by purchasing at $4626 per sq m, with the replacement cost of the block, including land value, about 80 per cent higher.
The building’s peak asset valuation was also about 44 per cent higher than the purchase price.
At the same time, it has secure tenants. About 88 per cent of the passing income is secured by federal and ACT government tenants with staggered lease expiries. It also has the proven ability to attract government and corporate tenants, with 8379sq m of leases executed since May 2023.
The manager sees further upside by boosting the block’s environmental sustainability and leasing up vacant areas that amount to about 4.4 per cent. It is targeting net-zero emissions from the block by 2028.
There are also strong market fundamentals, with the Canberra CBD vacancy rate one of the lowest among major capital city markets at 9.5 per cent vacancy, and government departments are chasing new space amid a construction crunch.
Office investment activity has been muted in Canberra over the first half of 2024.
The only deals settled in the second quarter were 10 Moore Street, which Centuria sold for $28.2m, and the Optus Centre, at 12 Moore Street, that a Dexus fund sold for $50m.
CBRE Research said capitalisation rates continued to expand across both the Civic and non-Civic submarkets in that last quarter.
Civic prime and secondary indicative yields ended the period at 7.1 per cent and 9.2 per cent; non-Civic prime and secondary indicative yields ended the period at 7.3 per cent and 9.3 per cent.
Yields had now expanded by an average of 180 basis points since the recent cap rate site call began in late 2022, CBRE said.
