Centuria Capital, MA Financial join forces in $223m acquisition of Perth’s Allendale Square

Centuria Capital Group (ASX: CNI) has partnered with funds manager MA Financial (ASX: MAF) to buy Perth’s Allendale Square office building for $223 million.

The 50-50 joint venture is the second deal in the past year by the property investors following their $166 million acquisition of 25 Grenfell Street in Adelaide’s CBD in October 2021.

Centuria says the acquisition represents a counter-cyclical investment strategy as Allendale Square has been acquired with an 85 per cent occupancy on a 7.25 per cent capitalisation rate. The company plans to employ its in-house management team to generate higher returns from the asset.

The 31-storey office building is located at 77 St George’s Terrace and offers 25,908sqm of office space with 2,745sqm of retail space in the lower ground-level shopping arcade.

“Allendale Square provides a great counter-cyclical, value-add investment opportunity being acquired with embedded capital value and within a market that benefits from strong tailwinds,” says Centuria’s joint-CEO Jason Huljich.

“Perth has the country’s highest physical occupancy rate among all capital cities and the market is further supported by a strong outlook for tenant demand throughout the medium term.”

Although the latest Perth CBD office data shows vacancies rose by 0.8 per centage points to 15.8 per cent since January 2022, occupancy levels surged to 71 per cent in July, the highest in the country. The occupancy data reflects the challenges for the city’s biggest office markets in Sydney and Melbourne trying to get workers back to their respective CBD precincts.

Centuria and MA Financial plan to roll their respective share of Allendale Square into separate unlisted single-asset close-ended wholesale property funds. Centuria is expecting to raise $70 million to launch the fund.

Allendale Square benefits from its proximity to the Elizabeth Quay waterfront development with the precinct buoyed by the opening of The Ritz Carton Hotel, recent residential apartment developments and restaurants creating a new night-life attraction for the city.

“Significant redevelopment is being completed within the quayside area in the short to medium term, which extends across the same period as the fund’s term,” says Huljich.

“This A-Grade office building provides direct access to the new, rejuvenated waterside precinct while being in the heart of Perth’s CBD.

“Historically, Centuria is well-known for its value-add office investments. We believe throughout the short to medium-term, these opportunities will be a key pillar of our growth alongside some of our alternative asset sectors, such as healthcare and real estate credit. This acquisition caters to strong appetite from our wholesale investor base.”

Julian Biggins, the joint-CEO of MA Financial Group, says Allendale Square is well positioned to take advantage of the ‘flight-to-quality trend’ evident in the office market.

“This is particularly relevant in a market like Perth’s CBD where the sub-lease vacancy is at its lowest in a decade,” Biggins says.

“Prime quality investments, significantly under replacement cost, are set to capture growth as rising costs constrain new supply and upward pressure on economic rents increases.”

The Allendale Square acquisition brings to the total of transactions in office, retail and logistics assets secured by MA Financial over the past two years to more than $900 million.