Lend Lease Group, Australia’s biggest property developer, signed agreements with Westpac Banking Corp. (WBC) and KPMG LLP to lease 71 percent of space in the first two office towers at its Barangaroo South financial precinct in Sydney.
Westpac, Australia’s second-biggest lender, has agreed to take about 70 percent of the space in the first tower, Sydney- based Lend Lease said in a statement to the Australian stock exchange. Accounting firm KPMG has signed a pact to lease area in the second tower, conditional on funding, with Lend Lease will also moving into the building, it said.
“This is the news everyone was waiting for in the marketplace, and it’s great that they’ve made the commitment,” said John White, who helps oversee $3 billion as Melbourne-based managing director for Asia-Pacific public real estate securities at investment firm Heitman International Securities Ltd. “The capital partners would like to lock away as much of the risk as possible. Now they’ve done that.”
Lend Lease began work on the A$6 billion ($6 billion) redevelopment in Sydney’s center late last year, in its bid to create a new financial hub for the city. The company, which will invest 25 percent of the equity in the two towers, is now in exclusive due diligence with potential capital partners on funding the rest, it said today.
The agreement will allow Westpac to consolidate its nine sites across Sydney into two locations -- its existing head office on Kent Street and the new building -- the bank said in a separate statement. Lend Lease will buy two buildings from Westpac in Sydney, it said.
The groups will move into the buildings between mid-2015 and early 2016, they said. They didn’t disclose terms of the agreements.
Lend Lease’s focus on selling assets to fund new projects should provide part of the required funding for the Barangaroo development over the next two years, Moody’s Investors Service senior vice president Maurice O’Connell said in a note today.
The pacts are “Australia’s largest ever commercial leasing commitment for a single development,” Lend Lease Managing Director Steve McCann said in the statement. “Our original assessment required only one commercial tower to be delivered in the first phase of the project, so we are very pleased to have leased two towers concurrently.”
Sydney’s central business district saw an increase in vacancy rate to 9.6 percent in January from 9.3 percent in July 2011 as more than 80,000 square meters (861,113 square feet) of new space was added to the market amid slower take-up, property broker Colliers International said in a report on the industry’s performance in the first half.
Lend Lease’s tenancy agreements could have negative implications for groups including Commonwealth Property Office Fund (CPA) and Dexus Property Group (DXS), which own the buildings KPMG, Westpac and Lend Lease would vacate as they move into Barangaroo, Heitman’s White said.
Commonwealth Property shares climbed 1 percent to A$1.01, while Dexus was unchanged at 93 cents.
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