GPT Group has put its $726.3 million half share of Sydney’s landmark MLC Centre on Martin Place up for sale, in the biggest commercial offering of the year to date.
The divestment is part of GPT Group’s efforts to reduce its exposure to the peaking Sydney office market, which currently stands at 65 per cent of its portfolio, and increase its weighting to Melbourne while also growing its logistics development pipeline.
The other half of the Harry Seidler-designed 67 level office tower and retail complex is owned by Dexus and its wholesale fund with a 25 per cent share each.
Dexus has pre-emptive rights to acquire GPT’s share to take full control of the building, with a 60-day period to make a decision.
Dexus acquired its two quarter shares for $361.3 million each in June 2017 from QIC Global Real Estate on a yield of 4.5 per cent.
Since then the Sydney office market has strengthened significantly with the vacancy rate at record lows below 5 per cent and values thought to be close to peaking.
GPT chief executive Officer Bob Johnston said the group planned to reinvest the proceeds from the sale of the MLC Centre into its development pipeline, which includes the new office tower at 32 Smith Street, Parramatta, and a planned new office tower at Melbourne Central.
“The Sydney CBD office market has experienced significant rental growth and cap rate compression over the past five years, and the group’s successful repositioning of the asset has generated exceptional returns for GPT.
“The group will also continue to seek new logistics development opportunities following the completion of a number of successful developments over the past two years,” Mr Johnston said.
In November, Singapore’s sovereign wealth fund, GIC, withdrew the sale of its $900 million half-share of another landmark Sydney building, Chifley Tower after offers fell short of expectations.
A spokesman for GIC blamed “increasing uncertainty in the macro environment and the general real estate market” for its decision to pull the sale.
8pc vacancy rate
Figures compiled by CBRE show the number of commercial deals fell 10 per cent last year and 9 per cent by value with a big slump in Chinese investment in Australian commercial property.
The A-grade MLC Centre comprises 66,829 square metres of office space, 6,013 square metres of retail space, a theatre, and 308 car spaces.
It currently has an 8 per cent vacancy rate, which is well above the average for the Sydney CBD of 4.6 per cent, according to the most recent Property Council Office Market Report.
The offering of MLC Centre follows five years of upgrade works including an overhaul of the food court together with an extensive re-leasing program undertaken within the office tower which GPT said had enhanced the income profile of the asset.
A successful sale of the building would decrease GPT’s weighting to the office market to 60 per cent from 65 per cent and increase its exposure to Melbourne to 34 per cent from 30 per cent.
The divestment of the MLC Centre is expected to be broadly neutral to earnings for the group in 2019 before any reinvestment of the sale proceeds.