Overseas investors showing strong interest in Melbourne office stock, undeterred by double withholding tax

According to a recent report by Property Watch, overseas investors appear to be strongly buying office buildings within Docklands and the CBD of Melbourne.

Currently, these office purchases account for around 36% of all very major deals being transacted — and they seem to be driven by Melbourne having the second lowest vacancy rate for this kind of property, after Perth.

Apparently, investors are not being put off by the federal government's recent decision to double withholding taxes for international landlords.

It seems the reason being given for this surge in buyer activity is Australia's economic strength — low inflation, declining interest rates, solid population growth and relatively low unemployment.

And these underlying fundamentals are what obviously appeal to overseas investors, as they consider the foreseeable uncertainties within the US and Europe.

As a result, investors are being drawn to the expected rental growth due to a clear lack of new construction, currently in the pipeline.

This became apparent during 2011, when just over 41,000 square metres of new office space came onto the market, which was well below the annual 135,000 square metres 10-year average.

Bottom line: Sometimes it takes a few "outsiders" to cause local investors to realise that things are not nearly as bad, as what some pundits would have them believe.

But here's the thing — by the time the "overly cautious" have come to realise the truth of where the market currently sits, many of those attractively priced commercial property opportunities will already been snapped up, by savvy offshore buyers.