AMP Capital’s Exit from St George’s Terrace

7 April 2021

After a 111 year tenure, AMP Capital have agreed terms with Primewest on the sale of 140 St Georges Terrace for $260m.

The 28 level landmark office building was developed by AMP back in 1975 on a site they acquired in 1901. The building became a template for Sydney’s 50 Bridge Street which was developed a year later. The property has been held by the Groups Australian Diversified Property Fund, currently facing a long list of redemption requests and a take over proposal from Dexus.

The 29,794sqm office building is one of the more significant Perth buildings to hit the market this year and has been positioned well for a sale. AMP Capital ran an aggressive leasing strategy in 2019, which saw the property move from 70% to 93% leased with a weighted average lease expiry of 2.8 years. AMP Capital invested capital in recent years to introduce end of trip facilities, lift upgrades and improvements to the entrance lobby areas.

The property is well positioned in the core of the Perth CBD, in close proximity to Elizabeth Quay, Brookfield Place and other key corporate buildings.

The property was offered to the market by Colliers and CBRE in an EOI process which attracted 10 suitors, including GDI Property Group and Dexus.

The proposed sale price is reported to reflect a passing yield of 6.5% to 6.75%. Assuming Primewest complete their due diligence, the asset is likely to be added to the Primewest Property Income Fund or the separate GIC Mandate.

In 2018, AMP Capital also sold their 50% interest in Exchange Tower (along with Primewest) to GIC who paid $226m for the 100% interest in the asset and in February 2021, GIC acquired a 25% interest in Chevrons Tower for around $220m.

The latest Perth research report from Knight Frank confirmed that whilst the overall vacancy of the Perth market remains high at 20%, the premium market remains stable at 6.8%. Average prime incentives in Perth have increased to 46%-50% resulting in a fall in effective rents fell of 14% in 2020, while face rents have remained relatively stable.

Knight Frank report that demand for office space is picking up but larger deals remain fairly limited as tenants assess space requirements post COVID. Net absorption fell by 32,991 sqm over the six months to January 2021 driven mostly a decline in the A grade segment.

The WA economy is expected to rebound strongly in 2021/22. Strong demand for iron ore from China has boosted W A’s exports, however the strength of the resources sector is not translating into stronger demand for office space since a lot of the planned resource sector infrastructure investment that would typically drive demand for office space has already been completed. Recent tenant demand has been largely concentrated in deals for 500 sqm or less, with 1,000 sqm+. Demand for office space could be boosted by the recovery in oil and gas prices from the sharp declines seen in 2020. The turnaround in prices may lead some energy companies to proceed with LNG projects that had previously been shelved, which could in turn have positive flow on effects to engineering-related office employment in the Perth CBD.