Savills WA Managing Director Paul Craig and Savills WA Director of Investment Sales Miles Rowe negotiated the off-market sale of Charter Hall’s 50% stake in the new Alluvion office tower to the Commonwealth Property Fund for $95 million.

It is the largest CBD office sale in Perth since Savills negotiated the sale of Allendale Square in December 2006.

Savills’ Mr Craig said the landmark sale highlights the underlying strength of the Perth property market. He said a number of listed Australian real estate trusts successfully raised capital during the course of 2009 and there is now clear evidence of a renewed appetite for acquisitions. 

Mr Craig said Savills’ Capital Investments team has been focusing heavily on international and institutional investors, who have primarily been targeting the Sydney market.

“However, with very limited opportunities in Sydney and the compelling resources story fuelling WA’s growth prospects, and in particular the complete turnaround in the predicted growth outlook for WA by major economic researchers such as the BIS Shrapnel, WA is quickly becoming a ‘buy’ for more and more domestic and international investors,” Mr Craig said.

“Our boom is now headed towards a ‘super boom’ and our property market, coming off low values, is bound to outperform other Australian capital city office markets.”

Savills’ Mr Craig said the 50% sale of Alluvion, Perth’s newest CBD office project, clearly shows that the fundamentals of the Perth property market are viewed as very strong on the national and international stage.

“The long-term outlook for the Perth market is positive given the impetus of these major new projects, supporting infrastructure and WA’s continued population growth.”

“The key indicator for Perth’s commercial office sector is the strong historical correlation and slight lag between major resources and office market investment. It is significant that the forecast resources investment for 2010 and 2011 is three to four times higher than in the peak of the last cycle in late 2007.”
Savills’ Mr Rowe said the Alluvion sale represents the first sale of Perth’s new generation of CBD office buildings. He said the building is 100% leased to a variety of tenants, anchored by Clough, with a very secure WALE of 11.7 years. 

“The sale sets a benchmark, with the passing yield of 7.74% considered to represent close to a market rate, given all the leases have been struck over the past 12-18 months and the passing average office rent is circa $600sq m net,” Mr Rowe said.

“The rate per square metre achieved of $8,520 sq m is broadly in line with the sale negotiated by Savills of Alinta Plaza (circa $8,000sq m) in late 2007, which was the last sale of a relatively modern CBD office building.”

Mr Rowe said the continued growth in employment and immigration into WA will have a positive impact on office accommodation requirements.

“This will result in stabilisation and eventually growth in rents and reduction in vacancy rates. In this tough credit environment, these two items alone provide the lenders with a much-needed level of comfort, which will result in not only improving buyer appetite but the ability to perform with the support of the lenders on stable, income-producing assets such as Alluvion,” he said.

Savills WA Head of Research Helen Swanson said a change in economic forecasts this year by BIS Shrapnel on the WA mining sector is testament to how quickly the market can change.

In March 2009 BIS Shrapnel forecast that Perth office rental prices will fall in tandem with a predicted slowdown in the mining industry. However, in November BIS Shrapnel stated that WA will have another upswing in mining investment that will have several years to run.

“A level head is always needed and essentially as long as strong market fundamentals are in place, such as strong population growth, low unemployment (as of October WA’s unemployment rate was the second lowest in the country on a seasonally adjusted basis) and significant investment in infrastructure, this should help support WA ride through the ups downs typical of a normal economic cycle,” Savills Ms Swanson said.