Last week has seen another 7 significant transactions across the market valued at $370M. The lack of quality stock is very evident at this point of the cycle. Brisbane has seen the majority of commercial transactions this year with virtually no major transactions in Melbourne, the reverse outcome from January 2016.
The most notable transaction last week was the South Korean Teachers Pensions Fund's purchaser of 505 St Paul Terrace, Brisbane for $205m. The deal which was reportedly done on a yield of 6.3% reflects the chase by offshore capital for long term quality assets. In 2016, Brisbane assets were generally trading at yields of 7% to 8%, almost 100bps higher than Sydney, however with this deal acquired at a yield of 6.3% the likelihood of the next quality Sydney asset being sub 6% if very high. 505 St Pauls Terrace is a quality asset, having been built by Leighton's in 2007 and leased to Brisbane City Council to 2027. At $11,600psm of NLA, the purchase price eclipses the 2016 average for Brisbane of $5,213psm. The danger of course is to assume that lower quality buildings with shorter WALES in Brisbane should trade at much higher capital values and sharper yields however the leasing markets still does not support this proposition.
Grocon's sale of 85 Spring Street Melbourne to Golden Age for $75M was confirmed again this week following settlement (having been reported back in December). Grocon acquired this site in 2013 for $45M, pocketing a cool $30M over 3 years. Grocon spent most of this time trying to secure a development approval for a 45 storey apartment project. The proposal was reduced to 39 storeys and 230 apartments with approval granted in July 2015. Grocon commenced a pre-sale campaign in early 2016 securing approximately 45% of apartments before deciding to sell the opportunity in late 2016. The deal reflects a price of $326,000 per apartment