The Canada Pension Plan Investment Board (CPPIB) has announced plans to invest $1.04 billion (£672.1) in two office towers in Sydney, Australia. This move represents the largest investment the Plan has ever made in a single real estate venture. This deal is one of several which Canadian institutional investors are making in commercial real estate in major urban areas at a time when the international market is going through some challenging times.
The CPPIB will be working with its joint venture partner, Lend Lease Corp., to turn an abandoned warehouse located on Sydney harbour (and near its main business district) into twin office towers. One of the towers will measure 41 stories in height, while the other will have 38. The properties’ design includes retail space as well. Construction on the towers is expected to be completed in 2015, with the joint venture partners considering adding a third one down the line.
This deal took more than three years to complete. The global financial crisis slowed down process of the negotiations. Momentum for the negotiations increased over the past 12 months, and the deal was finalised.
Part of the reason the CPPIB was interested in acquiring commercial property in Australia is the relative health of that country’s economy. Like the Canadian economy, Australia has been reasonably resilient during the recent global economic crisis, which makes it an attractive location for foreign investment from a Canadian perspective.
Sydney is similar to Toronto, where very little new office space has been built recently. CPPIB is predicting there will be a lack of supply in the city over the next several years, and has chosen to invest in one of only a handful of new office construction projects which have been approved over the next few years.
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