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US-based property group Hines has made a $40 million windfall on its 2016 investment in the IBM Tower in Brisbane's CBD after offloading the A-grade asset for $89 million to Centuria, which is banking on future growth in the office market.
The office tower, which has a weighted average lease expiry of 5.1 years and a net lettable area of 11,123sq m, sold on a yield of about 6.5 per cent.
The 15-storey office building at 348 Edward Street was acquired by an unlisted single-asset fund which Centuria will launch in the next fortnight. It is forecast to deliver a distribution yield of 6.25 per cent in the 2020 financial year, increasing to 6.5 per cent in FY 2021.
Centuria's joint chief executive Jason Huljich said while Brisbane's office market had been sluggish, he expected to see growth "ramp up" six months from now.
"Brisbane has been a bit stubborn over the last two years. We bought assets a couple of years ago, and we did believe that that market would turn a bit quicker," Mr Huljich said.
"But everything is starting to go the right way. Brisbane has really good net absorption, so we're not too far off seeing some good effective rental growth coming through," he said.
Rental incentives have been "stubbornly high" in Brisbane's CBD due to speculative development in the city, with vacancy rates hitting 16.9 per cent in 2016, forcing landlords to entice tenants to their buildings with sweeteners.
But this was changing, as vacancy rates fell and institutional ownership of several current development sites in the city meant landlords would wait for large pre-commitments before starting construction, Mr Huljich said.
JLL's Luke Billiau said there had been an inundation of investors in Brisbane not just because of the city's "recovery story" but also because of the lack of quality stock elsewhere.
"If you take a dozen buyers, six are here because of how tight Sydney and Melbourne are," he said.
The other half of investors were buoyed by Brisbane's recovery that was underway with significant infrastructure projects in the works and a decrease in vacancy rates, encouraging investment from both local and overseas players.
"The spread between Sydney and Brisbane at the moment is primarily there because of vacancy risk in these [Brisbane] assets. And that's decreasing so as a result you'd expect yields to come in," said Mr Billiau, who brokered the deal with Seb Turnbull and CBRE's Flint Davidson, Adelaide O’Brien and Tom Phipps.
Centuria acquired Hines' other Brisbane assets in 2018 as part of a $522 million deal that comprised four properties within the Hines Global REIT portfolio – two in Brisbane's Fortitude Valley, one in Melbourne's Docklands and a building in Sydney's Chatswood –in partnership with the Lederer Group.