Leightons Refutes Claims 567 Collins Street Will be Shelved

Leighton Holdings manager, corporate services, John Barrett rejected mounting speculation that construction of the 33-level office building at 567 Collins Street would be further delayed because of funding concerns financiers might have, that less than a quarter of offices could be tenanted on completion, and the building would not generate its full potential income.

Mr Barrett said he could dispute claims construction of 567 Collins Street would be shelved, but declined to say when building might start, directing BusinessDay to Leighton Holdings state manager Bill Beck, who was flying to Florida.

Representatives from APN Property Group, the other owner of the asset, did not return calls.

Law firm Allens Arthur Robinson is the only tenant tied to 567 Collins Street. In a statement to the stock exchange, AAR said it would lease 13,000 square metres from 2011 and that it expected construction of its new office to start "shortly" after March.

Leasing material for 567 Collins also said construction was set to start in the first quarter of this year and be completed by mid-2010. This has now been pushed back to 2011.

Last month, Leighton Properties bought a half-share in the 55,000 sq m office development from APN Property Group, which put it up for sale 10 days after AAR signed a lease.

At the time of sale, Leighton Properties state manager Bill Beck made it clear that the developer, which would bring deep pockets to the table, paid considerably less than the $200 million price tag initially touted for a half-share of the development when it came on the market months earlier.

APN managing director Christopher Aylward admitted the subprime crisis had affected plans for APN to develop the site on its own.

Sources say that, in the turbulent economic environment, which has affected some commercial property values, financiers are insisting on tenant pre-commitments of more than 60% to avoid the risk of a building being unable to sell later.

APN would also have had considerable holding costs, the sources say.

According to Colliers International’s Spring 2008 Market Indicators Report, tenant pre-commitments for other offices under construction are higher than at 567 Collins Street.

ANZ, Fairfax, Lend Lease, Myer and VicUrban buildings in Docklands, totalling 188,500 sq m, are 100% leased, the report said, as is Australia Post’s new 44,000 sq m headquarters at 111 Bourke Street in the CBD.

More than 85% of the 49,000 sq m 181 William Street office building will be occupied on completion, while about threequarters of the 25,500 sq m 550 Bourke Street and 16,000 sq m 737 Bourke Street, Docklands, office buildings are also accounted for.

APN paid $25.1 million for the 3942 sq m 567 Collins Street development site in 2006, after its previous owner, the Stamoulis family, had struggled to find an office tenant for three years before.

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Marc Pallisco

A former property analyst and print journalist, Marc is the publisher of realestatesource.com.au.