Mirvac abandons $670m Brisbane tower amid challenging market conditions

The proposed $670 million redevelopment of the heritage-listed Brisbane Dental Hospital in Brisbane’s CBD has been abandoned by Mirvac Group (ASX: MGR) as part of a rationalisation of its construction portfolio.

The project exit, one of two quietly announced by Mirvac that includes the sale of 383 LaTrobe Street in Melbourne’s CBD, has been made in tandem with the company posting a $201 million net loss for the first half of FY24. .

Mirvac, which lodged a development application for the 37-level Brisbane project in 2021 and gained approval for it in early 2022, has given scant detail on its reasons for pulling the pin on the development.

The company’s half-year report released simply states that it has made a ‘strategic decision to no longer pursue’ the development.

“We had an option over 200 Turbot St but decided not to pursue a commercial development given the current market conditions,” says Mirvac in a separate statement after Business News Australia sought further comment.

The project, earmarked for an 8,900sqm amalgamated site on the corner of Turbot and Albert streets, would have comprised 55,000sqm of office space as part of a complete redevelopment of the Brisbane Dental Hospital precinct.

Over the past three years since the project was announced, investor sentiment in the office sector has suffered a sharp downturn.

Brisbane’s office vacancy rate rose 1.6 per cent to 11.7 per cent in the six months to the end of December, despite total vacant space falling slightly to 273,576sqm.

The latest Australia Capital Flows report from CBRE also revealed this week that the office sector suffered a 65 per cent decline in deal flows nationally in 2023, the sharpest of any commercial property sector, which CBRE has attributed to an ongoing lack of consensus on fair value between buyers and vendors.

The abandonment of the $670 million Brisbane office development comes on the heels of a broader pullback from the sector by Mirvac which also revealed that it had exchanged contracts for the sale of 383 LaTrobe Street in Melbourne’s CBD.

Mirvac, which bought the Melbourne property for $122 million in 2018, had planned a 44,000sqm office project across 31 levels on the site.

The sale of the six-level office building, struck at $88 million which is $12 million below its FY23 book value, is expected to settle in the current half year.

Mirvac secured the Brisbane development site through a three-year put-call agreement with the Queensland Government following a competitive bidding process.

“Redevelopment of the site is conditional on Mirvac securing arrangements that will ensure the site becomes a vital part of Queensland’s commercial sector and stimulates construction activity,” the then Deputy Premier and Minister for State Development Steven Miles said at the time.

The state government this afternoon has confirmed that the option agreement with Mirvac has expired and that it is looking at other options for the site.

"The land at 200 Turbot Street is in a prime location providing links between the Brisbane Central Business District and Wickham Park," says a spokesperson from Queensland's Department of State Development and Infrastructure.

"The department is investigating whether 200 Turbot Street can be developed to deliver housing opportunities."

Demolition of the former dental hospital buildings at 200 Turbot Street was completed in April 2022, with early demolition achieving significant savings to government through reduced management, maintenance and security costs for these disused buildings.

Apart from 55,000sqm of office space, the Brisbane project would have included ground floor retail as part of the mixed-use development.

While the 1960s-era building occupying the 200 Turbot Street site was demolished in 2021 to make way for the development, the heritage-listed dental hospital building next door at 168 Turbot Street was to be refurbished and integrated into the new precinct.

The dental building, which played the part of Brisbane’s forensic pathology headquarters in the ABC crime drama Harrow, was completed in 1941 and heritage listed in 1999.

Mirvac’s statutory loss of $201 million for the December half, down from a $215 million profit a year earlier, was driven by investment property devaluations of $396 million.

The company posted an operating profit of $252 million for the half, down from $305 million previously, despite a surge in revenue to $1.26 billion from $855 million previously. Development expenses over the half year almost tripled to $739 million.