CENTURIA Capital is taking advantage of Canberra’s strong office market, which sailed through COVID-19 with flying colours, by offering Scarborough House with expectations it could fetch more than $110 million.
This is the capital city’s first major office listing in more than 12 months. Centuria has appointed JLL’s Tim Mutton and Luke Billiau and Colliers’ Matthew Winter and Paul Powderly to handle the expressions of interest campaign closing 12 May.
Located at 8 Atlantic Street, Scarborough House is situated in the Woden Town Centre in the heart of the ACT.
The property comprises a 14-level A-grade office building offering 16,755 sqm of space with 47 spaces base car park. It is fully leased to the Commonwealth Department of Health with a weighted average lease expiry of four years.
The net passing income is approximately $6,525,041 ex GST with fixed annual reviews of 3.50% – 4.00% p.a.
This first major offering in 12 months is expected to attract significant pent-up demand, coming at a time of heightened interest in one of the best performing office markets in Australia, which has defied the global pandemic.
Despite that envied status, there was a dry spell last year with total investment volumes of $10 million-plus in the Canberra CBD office market declining to a decade-low $80.6 million, just a sliver of the $761 million seen in 2019, according to Knight Frank.
Centuria acquired Scarborough House in 2016 for $72.33 million from the Indigenous Real Estate Investment Trust, on a yield of 7.24%.
According to Knight Frank, Canberra CBD office market core yields have firmed to approximately 5.88%, which suggests Scarborough House could fetch in excess of $110 million.
Knight Frank partner and head of institutional sales in Canberra Sean North said there was a lack of activity in the second half of 2020, with most deals transacting in the first quarter, but greater activity was expected for 2021.
“The recent easing of restrictions in most states and territories is now allowing for greater levels of domestic travel between cities and this will assist in increasing investor interest to divest or acquire assets in Canberra throughout this year,” he said. “Volumes are expected to rise back to above pre-COVID-19 levels, with Canberra considered a somewhat safe haven and more resilient market.
“Average prime office yields in the Canberra CBD market have remained stable since the onset of the pandemic, with prime yields holding at 5.88 per cent over the 12 months to January 2021.” North said.
A recent report by BIS Oxford Economics found net absorption in Canberra has exceeded expectations, reaching a 10-year high in 2020.
BIS predicts investment yields are likely to firm with A-grade dropping by 40bps by 2023 to 5.2%, hinging on bond rate movements, which could create upwards pressure.
It further forecast A-grade capital values growth of around 18% until 2027.