Melbourne office sales to reach $2 billion in 2011: Colliers

Sales of office buildings in the Melbourne CBD are expected to soar past the $2 billion mark in 2011, according to Nick Rathgeber, director of institutional investment services at Colliers.

Rathgeber says investor demand continues to outweigh stock supply in what he calls “Australia’s hottest office market”.

For the first six months of the year seven office buildings have sold for a combined $569 million.

Based on the sales to date, the average sale price stands at $81 million, below 2010 average of $89 million.

The 2010 figure was boosted by the sale of 717 Bourke Street for $242 million and the Commonwealth Property Office Fund’s acquisition of the Grocon portfolio for $581 million. Sales of Melbourne office buildings reach $1.76 billion in 2010.

Rathgeber expects the Melbourne CBD to continue to perform strongly into 2012 and beyond.

“The reasons for Melbourne being the hottest office market in Australia will not change overnight. The fundamentals of our economy are very healthy and the medium-term forecast for office rental growth in the CBD is very strong,” he says.

“It will take years rather than months for other capital cities to offer a superior investment profile to Melbourne.”

According to Jones Lang LaSalle the Melbourne CBD vacancy rate has fallen to 2% from a 10-year average of 3.2%. The national CBD vacancy rate sits at 4.1%.

CBD office buildings listed for sale include 477 Bourke Street, 661 Bourke Street, 601 Bourke and 565 Bourke Street, all being sold by CBRE agents Mark Coster and Martin O’Sullivan by expressions of interest.

Coster told Property Observer he expects to sell all of them.

Price expectations are about $72 million for 477 Bourke Street, which has 12,000 square metres of net lettable area and annual income $5.7 million. The building will be sold by expressions of interest on August 11.

Defence Plaza at 661 Bourke Street (annual income of $7.5 million, 19,000 square metres) is expected to sell for about $108 million on July 28.

Prices above $30 million are expected for 601 Bourke Street, which Coster and O’Sullivan are selling in conjunction with Robert Anderson and James Kaufman from Jones Lang LaSalle. The building comprises 8,000 square metres of net lettable area.

In June Brookfield Prime Property Fund’s acquired 50% of 111 Bourke Street for $120 million from the Motor Trades Association at a yield of 7.17% for 24,000 square metres of prime office space. The MTA acquired it in October 2008 for $121 million.

The other two recent noteworthy sales include 469 La Trobe Street, comprising 20,000 square metres of office space, acquired by CIMB TrustCapital Singapore for $84 million.

The building at 595 Collins Street holds the title of highest value sale for the year to date, sold by Investa Property Group for $130 million to Korean National Pension Service in April.

Colliers’ second-quarter Melbourne office report records more than $60 million worth of sales in fringe and suburban markets, with leasing activity dominated by deals on St Kilda Road.

The biggest leasing CBD leasing deal of the quarter was the Commonwealth Bank pre-committing to leasing 8,500 square metres of office space at 357 Collins Street at a net rent of $385 per square metre.