Commerz Real is pricing a Sydney tower off a police lease

Colliers has been appointed exclusively by Commerz Real to market 110 Goulburn St., the Australian Federal Police's New South Wales headquarters, a Sydney CBD freehold the agency has occupied for more than 28 years and where it has just signed a fresh ten-year commitment. The German owner is preparing to divest its 100 percent interest in the property, which carries 146,389 square feet of net leasable area and 173 car spaces across a 23,358-square-foot site, a plot ratio near 6.3 times.

The recommitment is the value event. The AFP has signed for a further decade, with two three-year options attached and fixed annual rental increases of 3.75 percent, an escalator that compounds to roughly 45 percent by year ten, and Colliers' Gillian Kaplan reads that recommitment as evidence both of the building's operational role for the agency and of the income security available to a buyer; the listing is framed around what it calls one of Australia's strongest government covenants. Nearly three decades of continuous occupation is the sort of tenancy record that makes a covenant legible to a credit committee.

Commerz Real is selling at the point of maximum information: a ten-year government lease is worth most on the day it is signed and a little less every year after, because a buyer's underwriting turns on how much term remains when the reversion arrives, and a hold now adds nothing the renewal has not already banked. The other side of that arithmetic belongs to the buyer, since the building pairs office accommodation with mission-critical infrastructure built around a police operation, which leaves a short list of replacement occupiers and a reversion most institutions would rather not underwrite at full value.

This publication has made the same point in other property types: at the Federal Way Safeway, it was a 2037 Albertsons lease setting the price, and a two-tenant Ohio industrial box was a narrower bet than the spec sheet suggested. Ten years of a single Commonwealth tenant with contractual 3.75 percent growth is that logic in its purest form, and it puts 110 Goulburn St. in a different queue from the Sydney CBD office market, where Colliers' first-half figures showed Asia-Pacific occupier demand narrowing to India, China and Japan, with none of the three in Australia, leaving a Sydney landlord leasing into a tenant's market.

The buyer pool narrows accordingly: the bid is less likely to come from an office buyer underwriting a rent recovery than from capital that wants indexed government income sitting alongside other long-dated credits, a trade priced against the debt market with Sydney rents barely in the model. The cap rate the sale eventually prints will be the clearest read on what a decade of Commonwealth rent is worth to private capital, and on whether that capital is domestic or offshore.