Office towers at Parramatta and North Sydney to become apartments as developer GPT sells off sites

In Melbourne, Media House at 655 Collins Street is an eight-level A-grade building on the corner of Collins and Spencer Street that could be sold.

Property giant GPT has dumped plans for major office skyscrapers in North Sydney and Parramatta, agreeing to sell the sites to a residential developer for about $219m, and has put other assets also held in its largest unlisted trust into play as it sells off assets in its wholesale office fund.

The group’s flagship GPT Wholesale Office Fund had bought the assets in North Sydney and Parramatta for office redevelopment when it was more bullish about the prospects of winning tenants in the suburban hubs.

But the steep rise in interest rates and overcrowded development pipelines in both of the key office markets, and high vacancy levels underpinned by the structural shift to working from home, have made getting new projects off the ground much tougher.

By contrast, the buyer Freecity is among the vanguard of a wave of new developers across Sydney that are taking on mixed-use projects, and its purchase of the sites is at a discount to the GPT fund’s costs when assembling them.

The purchase also shows the shift in the market from big-ticket office developments, which are now viewed as high risk, towards the apartment projects that Freecity is likely to pursue on both sites.

In its annual results, GPT flagged that under new chief executive Russell Proutt, it would take a greater focus on setting up capital partnerships as it looks to forge into new areas and get greater returns from its balance sheet assets. But it is also looking to reposition its office wholesale fund away from costly development projects that may not launch until the next decade.

GPT chief executive Russell Proutt.

The group quietly sold the properties at 155 Walker Street in North Sydney, and 81 and 91 George Street in Parramatta, for a total of $219m.

The North Sydney asset is expected to settle in November and the Parramatta sites are slated to settle in March next year.

GPT snapped up the sites when the economic environment and interest rate cycle supported its expansionary move and, although some office markets have stabilised, it is tough for large projects to win precommitments.

At the same time, the surge in interest for transport-oriented development has focused on building new residential towers as a means of addressing the housing crisis. 

This has meant that the highest and best use of many sites has become residential, with other large real estate funds with holdings in North Sydney and Parramatta expected to follow suit with either conversions or sales to apartment players.

GPT’s development team worked up schemes that demonstrated the residential potential of the sites and, as its fund does not pursue residential development, it sold the assets to Freecity.

The private developer has a commercial project in Crows Nest on Sydney’s north shore, where it is undertaking a project in Hume Street with an end value of $260m. It will include office and retail space as well as 58 luxury apartments.

In the city’s Rouse Hill, it is also undertaking another commercial project. That building is a mix of up to 20,000sq m of commercial and retail space and up to 200 apartments with an end value of about $240m.

Freecity also has co-living projects in both Macquarie Park, with about 505 apartments, and Rockdale, with about 130 units planned, as well as traditional residential projects in Lindfield, West Pennant Hills and Oakville.

The two sites in Sydney that the GPT fund sold were once to have made a large part of the group’s overall office pipeline. The site in Parramatta had been earmarked for two office skyscrapers with an end value of $1.6bn, with the overall scheme to span about 120,000sq m across a multistage development.

An artist’s impression of the tower once planned for 87-91 George Street, Parramatta.

In Parramatta, the block at No.81 consists of multiple adjoining lots totalling about 3060sq m, incorporating 81 George Street, 83 George Street and 1 Barrack Lane. It includes a number of low-rise commercial buildings. The site was earmarked as a future opportunity on its own for a 46,000sq m project and has been put together since late 2021.

The property at No.91 consists of multiple adjoining lots at 87–89 George Street, ranging from a warehouse-showroom to a seven-storey office building. The site could accommodate a development of about 75,000sq m. All up, GPT was reported to have spent about $160m assembling the sites.

The GPT fund is believed to have written down the North Sydney holdings after spending about $185m putting together the sites.

The North Sydney site was assembled in 2022. The GPT fund bought 157 Walker Street and secured the adjoining strata building at 153 Walker Street, with both blocks eventually slated to make way for a major development. The fund planned to develop a complex that would have been worth $800m and featured a 47-storey commercial office tower.

The first building in North Sydney was picked up from Marprop for about $125.5m. The second was bought for about $60m from six separate owners in a separate agreement.

At the end of last December, Parramatta’s 81 George Street was valued at $50m and 91 George Street was valued at $53.5m. The North Sydney asset at Walker Street was valued at $75m.

The sale of the assets – the Walker Street site that GPT put together for a major North Sydney skyscraper and the Parramatta properties in George Street – would also redefine those markets as less office space would be developed.

The GPT fund remains of the country’s largest wholesale funds, with interests in 17 office buildings and four development sites with an overall value of $8.7bn at the end of June. It outperformed the MSCI/Mercer Australia Core Wholesale Office Fund Index and its peers, over 1, 2 and 3 years at the end of June.

But it is now weighing up the sale of two other properties, including the building occupied by internet behemoth Google in harbourside Pyrmont and the former home of The Age in Melbourne.

The two buildings that the fund is considering selling off are likely to be chased by both passive institutions and developers looking to reposition them. The Sydney block in harbourside Pyrmont, workplace6, is a waterfront A-grade six level office building which was developed by GPT.

The 16,300sq m asset, occupied by Google sports harbour views, large campus-style floor plates, two levels of basement parking with 135 car spaces and the Doltone House function centre occupying the waterfront retail. It was held at $317.5m and had a weighted average lease expiry of 4.9 years at the end of 2023.

In Melbourne, Media House at 655 Collins Street is an eight-level A-grade building on the corner of Collins and Spencer Street with large campus-style floors and spans 16,600sq m. It had a fair value of $153m and a weighted average lease expiry of 5.9 years at the end of 2023.

It housed The Age and The Australian Financial Review newspapers before they moved to the Nine premises.