Charter Hall, PSP Investments snap up US$582m Melbourne office tower

Australian property fund manager Charter Hall, Canada’s Public Sector Pension Investment Board and the Charter Hall Prime Office Fund have acquired Telstra’s global headquarters in Melbourne’s CBD for A$830m (US$582.3m).

The 47-storey tower offers 65,913 sq.m. of net lettable area, comprising 63,398 sq.m. of office space plus retail and car parking, Charter Hall said in an announcement.

242 Exhibition Street, Melbourne
242 Exhibition Street, Melbourne (image: Charter Hall)

The 242 Exhibition Street property is 99.6% let to Australian telecommunications company Telstra until 2032, with annual fixed rental reviews of 3.5%.

The asset is currently undergoing base building upgrade works, including full vertical transportation and mechanical upgrades, as well as enhanced end of trip facilities.

Read more: Finding extra value in Australia’s office market

“The Melbourne CBD recorded 153,650 sqm of net demand in the year to 31 March 2019 – double that of Sydney CBD (71,800 sqm) – and was the strongest of any Australian CBD office market,” said Charter Hall group managing director and CEO David Harrison.

“Continued strong tenant demand has placed downward pressure on the Melbourne CBD vacancy rate, which now stands at 3.7% the lowest level since 1989.”

“Building on our successful existing partnership with Charter Hall in Australia, we are excited to be investing in this opportunity in the dynamic Melbourne CBD,” added Stephane Jalbert, managing director, real estate investments, Europe and Asia Pacific for PSP Investments.

“The strong yield profile of this investment and positive growth prospects for the city reinforce our long-term outlook of the Melbourne CBD office market.”

The sale was negotiated by Josh Cullen, head of capital markets Australia and New Zealand at Cushman and Wakefield.

The transaction comes after Charter Hall and Abacus Property made a joint takeover offer for the Australian Unity Office Fund in June.

The property fund manager’s PFA fund bought the 737 Bourke Street building in Melbourne for A$192m in May, while the group splashed A$804m on two office towers in Sydney in January.

Office real estate in Sydney and Melbourne’s CBDs have become highly sought after in recent years thanks to extremely low vacancy rates and robust rental growth.

Charter Hall is an Australian-listed property fund manager, with A$28.4bn of assets under management.

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