Commercial office development contributes to a significant portion of the Partners Fund portfolio, with current exposure sitting at  ̴ 36% across Melbourne, Sydney and Auckland.

Over the past 18 months, the fund has financed two major A-grade office developments in the Melbourne city fringe. Both investments are expected to be refinanced over the coming months as they achieve practical completion and reach significant leasing milestones.

This signifies a shift in the geographic mix expected in the office sector within the portfolio. Over the next two months, exposure to Melbourne commercial office development will reduce and we will see an increase in Sydney with the addition of two new investments to the portfolio.

Merricks Capital reached financial close this week on the first of these loans, York Street. A $146m loan for the redevelopment, integration and extension of two existing office buildings in Sydney’s CBD. On completion, the asset will be a boutique A-Grade mixed-use office building, comprised of 7,772sqm of office space and 594sqm of retail.

York Street is consistent with trends we are seeing in the sector, and JLL’s National Office Market Overview.

• Yields stable between 4.38-5.00%
• Prime incentives are 32.6% in 2Q21, slightly below Melbourne

The shift from Melbourne to Sydney can be attributed to a rotation of general development activity in multi-storey developments slowing in Melbourne and increasing in Sydney, south east Queensland and Auckland. Activity in Sydney non-bank lending has increased with the recent lockdowns resulting in slower turnaround times from banks.

This week in agriculture, there have been two changes to the portfolio with the repayment of a $45m loan in the NSW Riverina and the addition of one new agriculture loan. The $23.5m loan was added to the Partners Fund and Agriculture Credit Fund, for a broadacre cropping and horticulture business in the NSW Riverina.