Abacus Property Group and Investec's Australia Property Fund have snapped up a key B-grade office building in Brisbane for $132 million.
The 26-level office building at 324 Queen Street, on the corner of Creek Street in Brisbane's Golden Triangle office precinct, sold on a 7.2 per cent yield.
Vendors Dexus Property Group and Brookfield Multiplex had originally hoped for up to $150 million for the tower, but Brisbane's vacancy rate of 16.9 per cent kept the price down.
About 20 per cent of the 20,000 square metre building remains vacant but fully leased and, after capital works, it could yield as high a return as 8.9 per cent.
Investec Australia Property Fund (IAPF) chief Graeme Katz said the purchase brings his fund's total value to $583 million and is its third acquisition to use vacancy as a strategy.
"This strategy has proven successful. The fund's acquisitions at Solent Circuit and King Street are now virtually fully let resulting in significantly increased yields since acquisition," Mr Katz said.
"We believe the price of $6642 a square metre represents attractive value given that recent transactions in close proximity to the property have been concluded at between $7700 and $9700 a square metre," Mr Katz said.
Recent deals include Kevin Seymour's sale of the HSBC Tower in Brisbane to Singapore-listed ARA Asset Management for $188 million at $9709 a square metre and Primewest's purchase of 308 Queen Street for $37.1 million reflecting $8148 a square metre.
High yields are luring investors to Brisbane's CBD investment market. The spread between Sydney and Brisbane yields was as wide as 132 basis points at the start of 2016, but it has already contracted to 127 points. While prime yields in Brisbane range between 6 and 7.10 per cent, secondary yields range from 7.55 and 9.55 per cent.
The 324 Queen Street tower, built in 1975 for ANZ and extensively refurbished in 2001, includes ground floor retail and a two-storey basement carpark with 98 spaces. Tenants include Allianz, ANZ, Multiplex, North Queensland Bulk Ports, Asciano and Link Market Services, with an average lease expiry profile of 3.2 years.
Research by Knight Frank shows Brisbane's CBD office market could be turning the corner with positive net absorption in July of 42,742 square metres, its strongest result since 2012.
The state government is a key tenant and a series of government department relocations in the next few months is expected to result in the withdrawal of several office buildings which will help reduce the inflated vacancy rate.
Brookfield bought its half-stake in the building in 2003 as part of a parcel of properties bought by Multiplex before it was floated (and subsequently purchased by Brookfield). It is now mid way through a $2 billion disposal program designed to raise funds for its development pipeline.
Dexus Wholesale Property Fund bought its share in 2006, paying around $55 million. This week's deal was negotiated by Knight Frank's Justin Bond and JLL's Luke Billiau.