Credit Suisse have had a difficult time picking the Perth market with the sale of 190 St George’ Terrace sold to Andrew Forrest’s empire for less than it acquisition cost.
Credit Suisse acquired the property in an off-market counter-cyclical play for $64.2 million in 2016 and have now sold the asset for $55 million.
At the time of acquisition, the Perth office market vacancy had soared to 20% as the mining boom had weakened tenant demand, however Credit Suisse were confident of the market, having recently repositioned and fully leased nearby 45 St Georges Terrace.
The A-Grade tower at 190 St George’s Terrace comprises 9,362sqm office space over 12 levels offered solid credentials. It is located close to new developments such as Elizabeth Quay and Perth City Link and was anchored by HSBC which at acquisition provided the asset a weighted average lease expiry in excess of four years. The asset was however exposed to a number of smaller tenants with short term leases and with floor plates of approx 800sqm on average.
Credit Suisse injected additional capital into the asset in 2017 with a comprehensive upgrade to the ground floor lobby, including a new glass entry statement, marble floors and refurbished décor, an interior walled garden and statement lighting. The buildings’ air conditioning chillers were replaced and an full End of Trip facilities was installed.
By 2018, the leasing market in Perth had began to recover, with activity concentrated on new projects. The addition of 150,000sqm of Premium Office supply was predominantly take up however the A Grade market continue to hold vacant space. Across the market, just 15,333sqm of net absorption was recorded, leaving the A Grade market with 127,000 sqm of vacancy (17.5%).
In 2018, Knight Frank’s analysis of space advertised for lease indicated that floorplates under 750 sqm were three times more likely to vacant than those over 1,500 sqm, and that floors in buildings with partially framed and/or inset external glazing were three times more likely to be vacant than those with floor-to-ceiling glazing. 190 St George’s Terrace ticked both those boxes.
During 2018, prime net face rents remained generally unchanged at an average of $590/sqm; a level that has been mostly maintained since mid-2015, however by early mid 2019, the A Grade vacancy had fallen to 15.8% and prime net face rents had increased marginally to $620/sqm.
In 2018, Credit Suisse managed to secure one of its sub lease tenants, ATI Solutions, signing onto a new direct lease on level five of the office tower, at $650 per square metre plus incentive.
The Pandemic off course changed everything in 2020. Leasing activity slowed significantly in the first half, as prospective deals were placed on hold while tenants review their requirements for office space. Total net absorption fell by 12,107sqm over the six months to July, with a 2,810sqm increase in net absorption in the prime segment (concentrated in premium grade stock), more than offset by a 14,917sqm decline in net absorption in secondary market (primarily B grade).
Currently, some 2,530sqm of space is available for lease in 190 St George’s Terrace equal to 27% of the NLA of the building with rents advertised from $475/sqm plus fitouts plus incentives.
The property failed to gain the tenants it had hoped to attract and is now reported to have a WALE of approximately 1 year and the prospect of a difficult re-leasing program.
The sale of the asset to Andrew Forrest’s private Fiveight company signalled an end for Credit Suisse as the expected return on equity to recover the position was likely to be less than other opportunities that it’s capital could pursue.
Related Articles
