CENTURIA 175 CASTLEREAGH STREET FUND
Office properties
In the gloom, we saw the opportunity.
Investments in commercial property can be tricky even for experienced investors. Apart from the analysis of a property’s location, intended tenants and more, many fail to recognise the importance of the market cycle and timing.
Back in 2013, the general mood of the office property market was quite negative, but our experience and analysis led to the view that Sydney was at or near the bottom of the market cycle, as vacancy rates started to improve while significant rental incentives were still being offered to tenants.
In the gloom, we saw the opportunity. With the CBD Light Rail Project moving forward, commuting to work would only become more convenient and time-saving, which would stimulate the demand for CBD properties.
In searching for targets, the underlying value of Centuria 175 Castlereagh Street Fund conformed to our expectations:
- This well located tower has strong fundamental with significantly more parking spaces than newer properties.
- Its 9% yield was attractive, and the tower had an improvement potential after appropriate renovation.
- Predominantly government tenants provided us confidence in the reliability of rental yield.
20.9 % P.A.
TOTAL GROSS RETURN
2.6 YEARS
HOLDING PERIOD
Lastly, given that the rollout of the new Sydney Metro would certainly take some commercial properties out of the market, we believe that the tower would deliver a substantial capital gain either from direct government acquisition or from the reduction in mid-end office property supply in CBD area. We thus made our investment in April 2013.
Centuria, owner of the tower, then successfully removed the 20% of vacant spaces in the tower and increased rents by 20% through improved tenant demand and upgraded tenancies. The property was then purchased by the NSW State Government for its Light Rail Project at a significant premium.
The government acquisition adds to our already successful investment. As a result, we achieved a gross return of 20.9% p.a. over a holding period of 2.6 years.
*The performance was calculated as at 30 June 2018. Past performance is not necessarily indicative of future performance.