The 1 O’Connell Street building in Sydney, and Charter Hall chief executive David Harrison
The prospects of one of Sydney’s tallest ever office towers being developed may be fading, as the funds arm of property company Lendlease signals it will exit a collection of buildings on a block on O’Connell Street.
Lendlease and its then partner, Middle Eastern sovereign fund the Abu Dhabi Investment Authority, had proposed a superball office skyscraper in 2024 when the market was more upbeat about new office 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 risen 72 storeys and be the centrepiece of series of buildings known as the O’Connell precinct.
But property funds manager Charter Hall, last month bought the Middle Eastern fund out of its half interests in the buildings for about $500m.
Lendlease’s Australian Prime Property Fund Commercial, which controls most of the remaining interests in the precinct, is now looking to exit its stake and has served Charter Hall a pre-emptive notice.
The 1 O’Connell Street building in Sydney.
The parties declined to comment but industry sources pointed to Charter Hall’s expansionary stance as it looks to benefit from the recovery at the top end of the office market.
The previous sales campaign showed the strong appetite for premium office assets in Sydney.
The Lendlease-managed fund, which fended off investor unhappiness last year when Hostplus and UniSuper sought to replace it with Mirvac, could seek to sell it to a new party but had to first serve a pre-emptive notice to its co-owner.
Lendlease still sees substantial value in the proposed O’Connell Precinct development, as it would unlock a major site in the Sydney CBD.
The precinct, an amalgamation anchored by 1 O’Connell St and surrounded by a series of smaller buildings, is one of the prizes of the Sydney property market. The five separate assets occupy a combined freehold site area of 6,177sq m.
Charter Hall will now assess the pricing of the pre-emptive and decide whether to take full control of the project. The company is more likely to first reposition the buildings and consider releasing strategies rather than pursuing the super tall office scheme Lendlease proposed.
Announcing its results last month, Charter Hall highlighted its acquisition of the Abu Dhabi Investment Authority’s stake, noting it was one of the largest site consolidations in the Sydney CBD.
Charter Hall chief executive David Harrison said at the time the acquisition was a “pretty big statement” about the potential for strong growth in Sydney’s prime core market. He downplayed the prospect of demolishing the smaller buildings in the precinct to create a 100,000sq m tower, which would be among the largest ever attempted in the country.
The Charter Hall chief executive instead pointed to the options the developer now held. He said that once Charter Hall added its active asset management, it may be a much better outcome than undertaking a major development, whether it’s a 100,000sq m single tower or two 50,000sq m towers.
Mr Harrison said because it was only a first-stage approval, a potential development scheme – whether one tower or two – would not even enter the company’s uncommitted development pipeline until it controlled the site.