Marks Henderson outlays $92.75 million for Darlinghurst warehouse-converted-office

The warehouse-converted-office has celebrity chef Donna Hay as a tenant.

Marks Henderson is spending $92.75 million on a high-character warehouse-converted-office in Sydney’s inner east Darlinghurst.

The deal for 19A Boundary Street with vendor Haben Property Fund is being struck on a 4.7 per cent passing yield.

It values every square metre of lettable area at $14,300.

A trophy asset

The seven-storey complex with ground floor retail, including space configured as a showroom, occupies a 1680 square metre site in a popular commercial precinct.

Shortly after the office was created in 2000 – celebrity chef Donna Hay rented a space.

Sara Roney Gallery and creative agency Collider are also occupiers.

The complex has 53 tenancies – mostly offices, many of which are available for rent at any time.

It also has 51 car parks.

About a kilometre from the city’s Hyde Park, Haben Property Fund acquired 19A Boundary Road in 2017, paying $63.5 million.

It has undertaken some upgrades, including to amenities. A new lift and end-of-trip facilities have been installed, too.

…where landlords appear to be calling the shots

The office has a rare landlord perk – being a 5 per cent annual rental lift in its leases.

The fully occupied 6486 sqm building returns yearly revenue of $4.38 million – but some tenants are considered to be paying under-market rents.

CBRE’s Harry George with Mercer Property’s Tom Speakman and Matt Davoren represented Haben Property Fund.

The agents said Darlinghurst’s office vacancy rate has contracted for each of the last three years and is now at less than 3 per cent.

Buildings popular with creative types, like 19A Boundary Street, Mr George said, were in short supply for investors, too.

Interestingly, the broker added, any incoming owner could increase the lettable area 15 per cent by renting the asset to one occupier, or at least creating whole floor tenancies (ie, cutting out the shared spaces and corridors required by having so many small suites).

“The sale campaign generated strong local, interstate and international buyer interest from both high net worth private investors and fund managers,” Mr George said.

Drawcards, he added, were the location and scale of the building, and inside – its high ceilings, natural light, balconies and 360 degree vistas.

“The property is also extremely well positioned to cater for the next generation of tenants focused on ‘live, work and play’ locations that meet the needs of a growing millennial workforce,” the CBRE executive said.

Mr Speakman delivered more bad news for some of the building’s occupiers, adding “the property offers…scope for considerable uplift in the existing rents and potential for a variety of future exit strategies,” he said.

The A-grade office is fully tenanted to 53 occupiers. About 15 per cent more lettable area could be created if the landlord redesigns the building to cater for a handful of occupiers, or better yet, one.

Marks Henderson recent property portfolio reweighting

In March, Marks Henderson, a Melbourne-based private investor, paid $39.5 million for a high-character warehouse converted office at 19 Foster Street, Surry Hills, in Sydney’s inner south.

Director Chris Marks said its Darlinghurst acquisition “continues our theme of buying character buildings which are well positioned and appeal to creative and edge tenants in the technology, advertising, media and information sectors”.

Last year, Marks Henderson sold Dexus an office at 52 Collins Street in the Melbourne CBD for $70 million.

It paid $33.1 million for this 11-level, 3454 sqm investment in 2015.

That off-market deal was struck at the same time Dexus acquired the Reserve Bank of Australia’s 15-storey headquarters at 60 Collins Street, next door, paying $160 million to the federal government.

The contemporary Darlinghurst office returns annual rent of $4.38 million.
The Darlinghurst office has 51 basement car parks.

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of realestatesource.com.au.

Marc Pallisco