Australia’s commercial market continues its recovery with search volumes continuing to track upwards for both buy and lease.
The office-leasing market is showing signs of recovery with major projects beginning to win tenants as a Charter Hall development in Adelaide emerges as the next cab off the rank.
The deal with Services Australia is the largest precommitment to an office building in the wake of the coronavirus crisis and will instil confidence in other commercial projects awaiting tenants.
Governments across Australia have fast-tracked major projects, often including office towers, but almost all need tenants to get off the ground.
Charter Hall quietly picked up the precommitment from Services Australia, a federal agency that delivers Medicare, Centrelink and child support payments and services, supporting a major redevelopment on the site of the Southern Cross Arcade complex.
Under its plans, the arcade on King William Street will be demolished to make way for a 15-storey office tower, which includes almost 40,000sq m of office space and 3600sq m of retail on the ground floor. The bid was selected over a rival plan by the powerful Walker Corporation that would have seen the agency move into that developer’s $600m Festival Square project.
On Wednesday, the federal Finance, Charities and Electoral Matters Assistant Minister, Zed Seselja, asked a parliamentary committee to report on Services Australia’s proposed new premises at King William Street.
Department documents showed the Charter Hall tower was the “best value for money” as the agency would consolidate its five Adelaide sites into 28,500sq m of space in 2023. It will take a 10-year lease with two further five-year options, with an estimated whole-of-life lease cost of $585m.
Much of the activity nationally has been for sites that hold the promise of winning new tenants. In Melbourne, home improvement giant Bunnings last week said it would shift into a vacant building owned by the listed Growthpoint Properties Australia in the inner city market of Cremorne. But other nearby sites are yet to win tenants.
In Brisbane, global investment manager DWS teamed with developer Consolidated Properties Group to back development of a landmark $260m office building in Fortitude Valley. The project will be completed in the first quarter of 2023 and is seeking tenants via real estate agency JLL.
In Melbourne, Mirvac and Cbus Property are vying for the $2bn Treasury Square project, which is yet to be associated with any major tenants.
Australia Post has given some hope to the market by short-listing three groups for its new offices, with projects by Mirvac, Grocon and PCG favoured.
There are few major tenant briefs out in Sydney with the focus instead on companies extending leases while they work out their requirements for when the pandemic has passed.
The appetite in the city is instead for large capital transactions. In the latest play, Inmark Asset Management is looking to recapitalise the $450m Woolworths headquarters in northwestern Sydney.
A group of South Korean institutions, advised by Inmark, bought the complex for $336m in 2016. Office values have since risen in the area, with the move likely to attract global investors keen to access the pandemic-driven flight to the suburbs.
The offer, via Colliers International, will test the depth of demand for long-leased Australian commercial properties at a time when Telstra, AMP Capital, Nuveen and Abacus are also selling such assets.
But the supermarket giant has about 11 years remaining on its lease, and the building serves as its national headquarters. The company has been one of the strongest performers during the coronavirus crisis as people stocked up on necessities.
The last sale of 1 Woolworths Way at Bella Vista was struck on a crisp yield of 6.07 %, setting a benchmark for Sydney’s suburban markets. Low interest rates could see it trade more sharply.
