It is only one deal and it is only the sale of an equity interest in one CBD building in Sydney, but seeing it’s being done by GPT, one of the country’s major office building owners and managers, it will be treated as a potential signal that 2021 could be a turning point and signal the start of a tough period for this property class in the wake of the COVID-19 pandemic and the changes it is forcing on economic activity.
GPT revealed on Tuesday that it was selling its 25% in the Sydney CBD landmark 1 Farrer Place to Lendlease-managed Australian Prime Property Fund Commercial.
GPT said the proceeds from the sale – expected to be $584.6 million – will be reinvested into new opportunities, including logistics acquisitions and the group’s development pipeline, which it believes will generate superior long term returns for investors.
GPT said Farrer Place, which overlooks the city’s business district and iconic harbour landmarks, had delivered a return of more than 12% per annum over the past five years.
In other words, GPT reckons it can better deploy profits from CBD towers like this one in cheaper investments in logistics (like Goodman Group has been doing) that will reflect the changes forced on the economy by COVID-19, especially the still rapidly growing online shopping and services businesses.
GPT already has some deals in logistics in mind to spend some of the cash from this sale.
In yesterday’s statement, it said it had exchanged contracts for the purchase of three prime logistics properties and 2.35 hectares of adjoining development land at Drystone Industrial Estate, Truganina (near Melbourne) for a total price of $127.6 million. The settlement is expected to be completed by the middle of this month.
The properties, originally developed between 2015 and 2019, provide a combined 44,137 square metres of high quality warehouse and cold storage space fully leased to five tenants.
GPT said it had also recently started the speculative development of a 16,270 square metre warehouse at Berrinba in Brisbane, with completion scheduled for the second half of 2021 and an expected end value of $33 million.
GPT’s Chief Executive Officer Bob Johnston said: “These investments are consistent with GPT’s strategy to grow our exposure to the logistics sector, and complement our significant logistics development pipeline which has an expected end value of approximately $1 billion.
“The properties are well located, with long leases and good access to transport links, and we expect these assets will benefit from sustained demand from occupiers.”
The message seems pretty clear from this announcement and the CEO’s comments – low rise logistics and similar developments are now more favoured (especially for their lower capital outlay and shorter construction timeframe) than CBD office towers which will find it hard to refill with tenants and employees even if post COVID-19 life returns to a semblance of normality.
Investors didn’t like the news – on a day when the ASX started November with a strong gain, GPT securities lost 0.7% to $4.67. Some greedy investors probably thought they were entitled to the profits from the Farrer Place sale, not GPT’s development pipeline.