To secure and retain large, high profile organisations in a building for any length of time requires considerable skill and management that is often taken for granted.
More particularly, it involves a collaborative approach, a thorough understanding of the tenant’s needs and an ability to deliver comprehensively on the tenant’s brief for its accommodation.
If these things are done well so that tenants needs are met, then the rewards to the owner in terms of maintaining consistent, bankable cashflow can be considerable, as the following two case studies show.
Telstra Corporation occupied over 17,000 square metres in the Argus Centre at 300 Latrobe Street at the time it was acquired by Macquarie Office Trust in late 1998.
After the acquisition, Telstra renewed their lease twice in the building, once in 2005 for five years and again in 2010 for thirteen years, extending their lease out to 2023 taking their total tenure in the building for 28 years. Furthermore, over this time they grew their presence in the building to over 23,000 square metres.
By staying close to and working collaboratively with Telstra over a long period of time, we were able to deliver not just a high level of income stability for investors but also a significant increase in the capital value of the property.
The Australian Taxation Office entered into a pre-lease for a new regional office at Moonee Ponds, Victoria which was completed in 1991.
After their original term, the ATO extended their lease twice so that the expiry date of their lease was extended to 2020, giving the owner 29 years of consistent rent income.
This outcome was achieved by working closely with the tenant through a number of building refurbishment projects and understanding the need to invest capital in the building wisely to ensure that the building was able to meet the stringent operating and environmental parameters which are now a requirement for all Commonwealth Government office accommodation.
It is also a good example of how to retain a Commonwealth Government tenant in an ageing building, as at the time the last lease extension was
agreed in 2013, Moonee Ponds was one of the few buildings constructed around 1991 that the ATO had not already relocated from.
During 2019-2020, the Northern Territory government was
engaged in a scheme to stimulate the construction industry in Darwin. The
scheme entailed offering landlords of government-occupied office buildings
lease extensions in exchange for the landlord investing in building upgrades to
improve the standard of accommodation.
Given the relatively small size of the Darwin CBD office
market and the fact that it is typically not a market in which institutional
investors look to invest, in order to maximise the prospects of sale, it is
critical that buildings are maintained to a modern standard and have long
leases in place with their tenants in order to provide safe, predictable
cashflow to potential purchasers.
A building owned by Peak Equities leased to the
Department of Attorney-General and Justice proved to be eligible for the
scheme, and so in conjunction with our local agent and project manager, we
entered into discussions with the government which ultimately resulted in the
lease term being extended from its former expiry date 2031 out to 2038, thereby
maximising the saleability of the asset when the fund in which the property
sits is due to expire.
