Office Upside Lures Institutional Investors

Institutional investors are being lured back to the office sector with strong market yields on offer, according to the head of a $390-million urban wealth fund.

City of Brisbane Investment Corporation chief executive Kirsty Rourke says she is confident in the resilience of Australia’s office market after splashing more than $70 million on an office block in Canberra recently.

But she says putting a foot on something that stacks up financially is difficult in the current climate, as institutional investors and foreign money floods the market.

“We’ve been looking at Canberra for about two years now, but there hadn’t been much activity for a while,” Rourke says.

“It was difficult to find an asset that we thought provided value—the yields can be quite low.

“We acquired 33 Allara Street on a 5.63 per cent market yield with a good mix of tenants. About 55 per cent of the tenants are government or listed companies.

“Part of the reason we were attracted to the Allara Street office was the office vacancy rate of 6.1 per cent in Canberra. It represents good value compared to the other major capital markets over five to 10 years.”

It is the wealth fund’s first acquisition in the nation’s capital, which was largely untested and resilient in the face of the pandemic. The fully refurbished, 9736 sqm A-grade office building at 33 Allara Street is on a prominent 3725sq m site in the CBD’s City East precinct.

A JLL report has revealed Canberra’s office market has recorded a fourth sucessive quarter of positive net absorption in the first quarter of 2022. Canberra’s headline vacancy rate in the office sector is now at 5.5 per cent, compared to a national average of 13.5 per cent, while its prime vacancy rate of 2.8 per cent is the lowest in the country.

Rourke, a former property lawyer, shifted gears in 2014 to go behind the deal-making and drive Brisbane City Council’s investment arm, steering its $390-million portfolio through some choppy water over the past few years to deliver a 17.8 per cent return last financial year.

The fund has been recycling assets to unlock money and acquire new properties to realise the upside. Rourke says the fund’s sweet spot is assets between $20 million and $80 million, and she says they are “assessing those opportunities as they come across our desk”.


▲ CBIC has been focusing on the repositioning of its 9 George Street, Parramatta asset to boost its ESG values.

CBIC also has office assets in Gosford and Parramatta. Rourke said the Parramatta office asset had been “challenged by Covid” and extended lockdowns but said there was still “strong bidding activity for assets” in Sydney’s growing Parramatta CBD.

“There’s still a strong level of demand. I think we haven’t seen the impacts play out in office demand yet though,” Rourke says.

“People are still figuring out how to go back to the office and what their requirements are. I don’t think organisations have fully got their head around their workplace strategies. They still want one day where everyone is in the office, but how do you accommodate those people.”

The Parramatta office block at 9 George Street is part of a repositioning play Rourke says they plan to employ with older buildings to boost their ESG value and future-proof the asset.

“You’ve got to ensure your building doesn’t become obsolete, it’s critical to invest in ESG,” she says.

“Where an asset doesn’t have at least a 4.5 Nabers rating we look at the capex required to get it there. That program doesn’t preclude us from looking at these assets.

“Reducing consumption costs gives you a good level of control of your asset, and tenants are also starting to demand it.”

While CBIC has been focused on increasing exposure in other states across Australia, Rourke says Brisbane remains an appealing market to invest in, particularly with the 2032 Olympics on the horizon.

 City of Brisbane Investment Corporation CEO Kirsty Rourke

▲ City of Brisbane Investment Corporation CEO Kirsty Rourke and the former Gordon and Gotch building at 262 Adelaide Street the CBIC sold for $18.8 million four years after buying it for $9.1 million.

She says the portfolio’s weighting was skewed to office at the moment but they were looking to increase their exposure to industrial. A tough ask in the current climate, with yield compression and a high level of institutional capital floating around.

“We don’t see value at 3 per cent, that makes it a challenge to meet our return objectives. We have an industrial asset on the Australian Trade Coast, but it’s a highly competitive market right now.”

Rourke says they are looking to acquire smaller industrial assets with a view to amalgamating sites.

CBIC also has two development sites for specialist disability housing in East Brisbane and Everton Park, which it is looking to develop.

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