The building sold completely empty, a reflection of how the Perth office market has become a disaster zone for many commercial property investors, although none, arguably, as high-profile as Blackstone.
When Blackstone – or Valad as 151 Property was known in 2013 – acquired the St Georges Terrace property, the office vacancy rate in Perth’s CBD was about 10 per cent and starting to climb as the major mining projects ended and demand for office space plummeted.
Perth’s CBD office vacancy rate peaked at an eye-watering 22.5 per cent in January 2017 as Blackstone first tried to sell 8 St Georges Terrace – then the home of accounting firm RSM Bird Cameron – and another Perth building, 14-16 Victoria Avenue, also bought from GE, for $16.16 million in July 2015.
Although the vacancy rate has started to decline, it is still almost 20 per cent – more than double the national CBD average according to the most recent Property Council’s Office Market Report.
Alongside that, office rents have also tumbled and incentives such as rent-free periods and office fitouts have soared amid a flight to quality.
A spokeswoman for Blackstone declined to comment on the sale of 8 St Georges Terrace. Sean Flynn and John Williams of JLL brokered the deal.
For the buyer, Quintessential Equity, the acquisition through its $112 million Master Fund is an opportunity to buy into Perth at the bottom of the market, a strategy adopted by other investors with about $1 billion worth of Perth office towers expected to change hands in 2018.
Quintessential Equity executive chairman Shane Quinn said although the office leasing market in Perth was still “very tough”, the company had bought the property at “well below replacement cost”.
“To build something like this new would cost you $8000 to $10,000 per square metre. We have bought at about $2000 a square metre,” he told The Australian Financial Review.
Mr Quinn said Quintessential would invest in regenerating the building cost-effectively by the middle of 2019, but could take new tenants within three months.
“We have a proven record of turning around high-vacancy buildings in challenging markets and we now believe the significant opportunity exists in the Perth market when capital values are so low,” he said.
“While it has recently experienced stagnant demand and low tenancy rates, we believe increased public and private investment in Western Australia coupled with a resurgent resource sector will continue to drive job growth and revive market demand,” he said.