Mirvac takes hit on Sydney office stake

The 29 level office at 255 George Street.

Mirvac has sold a half stake in a recently renovated Sydney office for a nine per cent discount to book value.

Singapore’s Keppel REIT Management Limited, on behalf of the Keppel REIT, is the buyer – outlaying $363.8 million, a yield of about six per cent, according to sources, for the 29 storey ex-National Australia Bank House, at 255 George Street (shaded orange, top).

With 38,805 square metres of office area, 192 sqm of retail and 188 car parks, in the city’s Core precinct, the 5-star NABERs rated property includes a wellness studio, café, end of trip facilities and flexible workspaces on the ground and mezzanine floor.

The George Street foyer was refurbished in 2022.

Vacancy is seven per cent; Mirvac will provide Keppel REIT a rent guarantee for that.

The seller will also cover any unexpected expiries, though with many leases struck after a 2022 refurbishment and due to expire between 2024 and 2028, the asset’s weighted average lease expiry by income is a high 6.8 years.

The deal comes nearly a year since Dexus sold two Sydney CBD offices for values between 10-20pc below valuation: 1 Margaret St, which traded to Quintessential and 44 Market St, purchased by Pacific Alliance Group.

Earlier this year that manager offloaded a Canberra office for $50m, against a $55m September, 2023, appraisal.

Last week we reported Charter Hall and QuadReal divested Brisbane’s ex-Southern Cross Austereo site after abandoning plans for a major office redevelopment, to Shayher Group, for $46m.

Those vendors paid Melbourne’s Kador Group $65m in 2021.

255 George Street

Mirvac sold the 255 George St stake on behalf of the Wholesale Office Fund 1 which retains the balance; while the current deal prices the property at $727.6m, the value two years ago was c$875m.

The Australian Taxation Office and Virgin Money are amongst the key tenants (story continues below).

Dexus sold 1 Margaret Street last year.

The Bank of Queensland is another; it also took naming rights following a 2021 lease deal.

It will be the third investment co-held with Keppel REIT – the others are 8 Chifley Square and Perth’s David Malcolm Justice Centre.

“With the Core precinct’s positive office market outlook and the property’s prime specifications, the DPU accretive acquisition will enhance the quality of Keppel REIT’s portfolio and we are confident that it will continue to attract companies looking for quality office spaces in Sydney,” the fund’s chief executive officer and manager, Koh Wee Lih, said.

“Looking ahead, we will continue to seek opportunities within Keppel REIT’s portfolio for optimisation and capital recycling, while remaining disciplined in capital management to capture opportunities with attractive total returns over the longer term,” he added.

Core vacancy is 11pc, the lowest among the four key CBD submarkets, according to the latest Property Council of Australia Office Market Report, released February.

The region has also recorded five consecutive quarters of declining vacancy, according to the buyer.

Cushman & Wakefield’s Josh Cullen and Mark Hansen with JLL’s Simon Storry and James Barber represented Mirvac.

Settlement is scheduled by the end of the year following Foreign Investment Review Board approval.

On its current numbers, Keppel REIT’s portfolio will then contain 19.3pc Australian product – following Singapore at 76.5pc but more than South Korea and 3.3pc and Japan, at 0.9pc.

The proportion of its freehold assets will rise from 33.2pc to 36.4pc based on net lettable area.

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Marc Pallisco

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