Owner of new City building agrees to release rent details

21 Oct 2019

The owner of the building recently leased by City of Newcastle as its new head office has agreed that the commercial terms can be made public.

The decision reveals that City of Newcastle secured a lease (gross lettable area) that is significantly less than the average price paid for A-grade office accommodation in the CBD.

Spartohori Pty Ltd agreed Wednesday to a written request from Lord Mayor Cr Nuatali Nelmes to waive its right to commercial confidentiality over the lease.

The annual amount to be paid in rent will now be included on City of Newcastle’s contract register, available at:

www.newcastle.nsw.gov.au/Council/Our-Responsibilities/Access-to-Information/Contracts-Register

The lease came into effect on 4 September this year, with City of Newcastle securing space within six floors of the new building for 15 years, with a first right of refusal (after the mortgagee) to buy the asset.

The City will pay $276.92/m2 for the gross lettable area plus 63.36% of outgoings for the building, which is significantly less than the average gross A Grade rental in the Newcastle CBD of $500/m2.

City of Newcastle’s rent can only increase by CPI, and even then by no more than 3%. This is 1% lower than the standard lease agreement for A-Grade office accommodation in the CBD.

Lord Mayor Cr Nuatali Nelmes said she requested the owner of 12 Stewart Avenue to make the lease terms public.

“In 2017 when the elected Council considered the lease, the owner was clear that the terms must be confidential. This is standard business practice noting he was negotiating leases with other parties for the same building.

“Councillors voted in support of the recommendation to relocate the City’s administration centre to 12 Stewart Avenue and to maintain confidentiality on this information on commercial grounds.

“With the owner having now finalised all leases for the building, I considered it a fair and reasonable time for the lease to be publicly available.

“City of Newcastle secured a lease agreement that is significantly less on a per square metre basis than the average lease for A-Grade office accommodation in Newcastle, which is an excellent result for the city,” Cr Nelmes said.

CEO Jeremy Bath said the favourable terms were reflective of the City of Newcastle’s position as the building’s anchor tenant.

“The benefits of consolidating 450 staff previously spread across three buildings and 12 floors into one building and across just six floors, are obvious,” he said.

“There is already noticeably more communication and collaboration occurring, confirming the expected efficiencies of being in the one location. There is an abundance of international research to show that we make better decisions when we collaborate. Council staff are no different.

“An independent business case by CBRE found that ratepayers are at least $13.5 million better off for the relocation. The sale of the Roundhouse building achieves significant savings in building maintenance and avoiding millions of dollars in redeveloping the 43-year-old building.

“The $13.5 million public benefit calculated by CBRE doesn’t include the $16.5 million proceeds from the sale of the Roundhouse Building or the $22 million in interest that will be generated from investing these funds over the next 20 years. Should the elected Council support the sale of the Fredrick Ash Building next year, then this financial benefit to ratepayers will increase even further.

“In recognising the financial benefits of leasing our head office over owning it, City of Newcastle has done what many others locally did years ago. Hunter Water, the Newcastle Herald, ANZ, Telstra, RMS, Coles, Kmart, Big W, David Jones and Woolworths have all recognised that there are significant financial gains from leasing a building rather than owning it.

“The independent business case does not yet include plans to make the ground floor a dual space for customer service as well as the region’s first digital library. This will only enhance the public benefit of the move.”

Representative and spokesperson for Spartohori Gregory Politis said in his emailed response to the Lord Mayor:

“Now that lease arrangements, negotiations and commercial matters have been finalised with all tenants at 12 Stewart Avenue, and in the interest of the public good, I am of the mind that the commercial lease between Spartohori Pty Ltd and the City of Newcastle will no longer need to remain confidential on the grounds of commercial in confidence.

“I therefore agree and permit the lessee to disclose all details pertaining to the above stated lease to the public.

“I appreciate your patience and understanding regarding this commercial matter.”

The total amount to be paid annually is:

Rent - $2.080 million

Outgoings - $482,509

99 car spaces - $272,250

Forecast rental income from the sublease of one floor with 20 car spaces - $500,000.

Net expense - $2.335m

Rent and outgoings for the new office are fully provided for in CN’s 2019/20 budget which was approved by the elected Council in June.