The listed property sector will head into 2015 with plenty of momentum after a spending more than $360 million on industrial, office and retail acquisitions, almost on the stroke of New Year’s Eve.
Deals were secured by DEXUS Property Group, Abacus Property Group, Growthpoint Properties Australia and the 360 Capital Group.
The biggest end of year deal was secured by the DEXUS, which paid $153.5 million for the eight hectare Lakes Business Park in Botany, Sydney.
The business park and industrial estate – one of biggest offerings in the area’s history – is eight kilometres from the Sydney CBD and is close to Sydney airport and Port Botany. It was acquired from LBP Holdings Pty Ltd, an investment company associated with the wealthy South Australian Michell family.
Its eight buildings offer 43,000 square metres of office and industrial space and are home to more than 50 tenants including Mazda and Telstra. They are 95.9 per cent occupied, with a weighted average lease expiry of 3.2 years. The site also offers the potential for residential development.
DEXUS CEO, Darren Steinberg said it was a “strategic investment in one of DEXUS’s core industrial markets with the potential for superior rental growth in the medium term due to the lack of greenfield land supply, combined with competing land use interests in the area”.
The sale was negotiated by Chris Key and Stuart McCann of JLL on behalf of LBP Holdings. They said it was the third largest recorded property transaction in South Sydney’s history and the first time the site has sold since it came under the current owners control in the 1950s.
Abacus Property Group picked up a heritage goods shed and office building in Docklands for $76.2 million with development potential for a high-rise tower.
Abacus purchased the site at 710 Collins Street from developer Lorenz Grollo’s Equiset group, and comes as the developer Grollo offloads assets to recycle capital into Rialto Towers.
The former railway building turned goods shed at 710 Collins Street comprises 11,235 sq m of office space, following an ambitious, award-winning conversion costing $63 million by Grollo five years ago.
The building is now fully leased, with two government agencies occupying the bulk of the building on long-term leases expiring in a decade.
The deal reflects a yield of 6.4 per cent not including transaction costs.
Abacus, headed by Frank Wolf, said it was attracted to the asset for its location in one of Melbourne’s fastest growing commercial precincts and adjoining two busy mixed use developments, a spokesperson for the group said in a statement.
The group is likely to try its hand at a new development on the site, according to the same statement.
“There is an opportunity to develop a larger commercial tower at the Collins Street end and to further develop the property’s retail offering,” the group said.
The $1.6 billion Growthpoint Properties Australia trust said it would develop a seven storey office building at 211 Wellington Road, Mulgrave in Melbourne south east at a total cost of $62.6 million.
The 1.1 hectare site was acquired from Australand and its joint venture partner Commercial & Industrial Property Pty Ltd for $7 million.
Growthpoint expects an initial income yield of 7.75 per cent on completion of the development
The building which will offer 12,718 square metres of office space will be 60 per cent leased to Monash University under a five year lease from practical completion. The deal includes a five year rent guarantee from CIP for any part of the remainder of the building not leased when its completed in the first quarter of 2016.
“The income yield is attractive at 7.75 per cent and there are low acquisition costs associated with the transaction structure. Acquisition of this brand new office building, with no significant capital expenditure in the medium term, is consistent with our office sector investment strategy to invest in modern office buildings leased to quality tenants,” said Growthpoint managing director Tim Collyer.
Property investor and fund manager 360 Capital Group acquired two shopping centres in Sydney and Queensland that will sit within a new unlisted fund called the 360 Capital Retail Fund No. 1.
360 Capital Group will undertake a $43.0 million equity capital raising in February for the $70.4 million fund which will offer investors an eight per cent annual distribution yield.
The seven year, close-ended fund will hold the Windsor Marketplace, a neighbourhood shopping centre in the Windsor Town Centre in Sydney outer north west, to be acquired for $19.6 million on an initial yield of 7.5 per cent and an unnamed sub-regional shopping centre in Queensland, under contract for $48.3 million on an initial yield of 8.1 per cent.
Windsor Marketplace, redeveloped in 2009 is anchored by a Woolworths Supermarket on a 22 year lease expiring in March plus nine specialty shops, two ATMs, two kiosks and a free standing medical centre across 5,347sqm of gross lettable area.
In an outlook report for 2015, CBRE head of research, Stephen McNabb, said retail and industrial assets were better placed [than office]to experience yield compression in 2015 as rent growth is forecast to improve.”
“In the year ahead we expect some stabilisation in required returns. The key driver of this expectation is gradually increasing interest rates, in line with a gradual improvement in the economy,” Mr McNabb said.
“The combination of these two, essentially offsetting factors, is expected to bring stability to IRR’s and hence take some momentum out of the strong yield compression story seen in recent history. In such an environment, investors are more likely to focus on rent growth expectations.”