1 O’Connell Street building in Sydney CBD.
Property funds powerhouse Charter Hall has signalled its confidence in the premium end of the office market by taking full control of the $1bn O’Connell precinct in Sydney’s CBD.
The company has quietly agreed to a deal which will see it take ownership of a series of buildings from developer Lendlease’s flagship office property fund.
Charter Hall, which is also developing Sydney’s $1.8bn Chifley South tower, has identified the premium office market as one of its key focuses, alongside convenience retail and large-scale logistics. The David Harrison-led group is looking to steal a march on rivals – many of whom are still selling down assets to meet redemptions or cut gearing – by securing key sites positioned for the next cycle.
The company is drawing on its experience as both a developer and a funds manager to secure assets at a time when many offshore players and domestic rivals are all but out of the market.
Charter Hall is taking control of the precinct anchored by the 1 O’Connell Street building.
Mr Harrison told the Macquarie Australia Conference the top end of the office space market was tightening and securing tier-one builders for offices was difficult, which will likely crimp future supply.
He confirmed the company had secured control of the O’Connell precinct but did not elaborate on the details, although he is likely to bring in a large fund to back his ambitions.
Mr Harrison said it was the kind of strategic precinct play the company was targeting. He said the government was driving densification not only for residential developers but also for office precincts.
“That’s going to drive long-term product creation for our investors,” he said.
CBRE and JLL advised Lendlease on the precinct but declined to comment.
The property deal will see Charter Hall secure full control of 1 O’Connell St and five smaller assets that have a combined site area of 6177sq m.
It is likely to actively manage the existing assets rather than immediately redevelop.
Any project is likely to consider tenant demand and building costs, making a super tall scheme – like the one Lendlease worked up when it controlled the site – unlikely.
Lendlease and its partner, the Middle Eastern sovereign fund Abu Dhabi Investment Authority, had proposed the scheme in 2024 when the market was more upbeat about office skyscraper projects.
It was to rise next to the 1 O’Connell St tower, and be integrated with that building. The proposed 309.2m building was to have had 72 storeys and be the centrepiece of the buildings known as the O’Connell precinct.
But in January, Charter Hall bought the Middle Eastern fund’s half interests in the buildings for about $500m. It will likely outlay a similar sum to take full control of the precinct.
The parties said in a statement that the “overall transaction represents a strong outcome for both parties, aligning with APPF Commercial’s portfolio strategy of prime assets and capital recycling objectives, while enabling Charter Hall to expand its exposure to quality, well-located Sydney office assets”.
The Lendlease scheme was hit by inflationary pressures, rising interest rates, and broader economic uncertainty that has hit development projects. This made its O’Connell scheme tougher to get off the ground but the fund’s overall holdings will now be made up of prime office assets in the core Sydney and Melbourne markets that are performing best.
Lendlease is separately developing in the Sydney CBD and last year won the job of building the new Hunter St metro station and developing an office tower, Hunter Street West, which carries a lower risk profile.
The Lendlease-managed fund fended off investor unhappiness last year when Hostplus and UniSuper sought to replace it with Mirvac.