Investor appeal of St Kilda Road office market continues with Centuria $28 million sale

The strength of the St Kilda Road fringe CBD office market has been reaffirmed following a series of snappy sales at high yields ranging from 6.2% to 10.6%.

This week Centuria Capital’s property funds management subsidiary, Centuria Property Funds, announced that it had sold its 12-storey office 607 St Kilda Road for $28.5 million to a private investor on a strong yield of 8.23%. 

The fund had originally acquired the building in 2002 for $21 million and has spent about $5 million as part of an extensive refurbishment and service upgrades throughout the building. 

It was sold fully leased with a weighted average lease expiry in excess of six years following a joint campaign by Paul Henley and Langton McHarg from Knight Frank and Nick Rathgeber and Leigh Melbourne from Colliers International. 

Centuria Property Funds CEO Jason Huljich says he is delighted with the response to the campaign, which receiving multiple offers.

“St Kilda Road’s commercial property market is gaining momentum with high net absorption and low vacancy rates. 

“The competitive and sustained rental growth is attracting local and global investors to the area and the sale of 607 St Kilda Road is reflective of the popularity of the boulevard,” he says. 

Huljich says investors in the fund have benefited from “solid capital gain achieved plus strong income distributions throughout the term of the fund”. 

The sale of 607 St Kilda Road follows Centuria spending $58 million on acquiring another office property on the strip, 441 St Kilda Road, an A-grade office, on behalf of the Over Fifty Guardian Friendly Society. 

The building was acquired from the Dexus managed AXA Wholesale Australian Property Fund. 

The property has a net lettable area (NLA) of 16,175 square metres with a WALE of 4.08 years with tenants including Hutchinson 3G, SAP Australia, Kellogg Brown & Root, Macquarie Telecom, Bank of Queensland and MAB Corporation. 

This property is also undergoing a significant upgrade expected to result in a 4.5 star NABERS rating from a current 3.5 star rating. 

There have been five other major office sales dating back to August 2010 according to the Savills March 2012 Melbourne Fringe Office report, including two which took place in the final quarter of 2011. 

In December Abacus Property Group picked up 484 St Kilda Rd, a 15 storey building for $68 million at a yield of 7.92%. It was marketed by Jones Lang LaSalle agents Robert Anderson and James Kaufman, with tenants including Symbion, Glencore Grain, and Australand. 

The other recent sale occurred in September with 601 St Kilda Road selling for $30 million September to the Quek family’s Shakespeare Management business.  The property, part of the Record Realty Trust portfolio, was sold by Jones Lang LaSalle agents Robert Anderson and James Kaufman and Knight Frank agents Paul Henley and Paul Burns on behalf of receivers KordaMentha at a yield of 10.6%.

According to Savills, the St Kilda Road strip has 743,000 square metres of lettable area while Southbank and Docklands combined have 944,000 square metres of lettable office space. 

As of December 2011 there was 80,000 square metres of vacant office space on St Kilda Road compared to 32,000 square metres of vacant space in Docklands/Southbank. 

More than half of fringe Melbourne office space is prime quality (924,000 square metres) with the rest of secondary quality. 

The 2012 Property Council of Australia office market report shows that total vacancy on St Kilda Road decreased due to the highest demand in 17 years with vacancy rates falling from 13.4% to 10.8% over the six months to January 2012.