Investor pays $3,686 per square metre for whole floor in Fender Katsalidis Melbourne office block

Investor pays $3,686 per square metre for whole floor in Fender Katsalidis Melbourne office block
Investor pays $3,686 per square metre for whole floor in Fender Katsalidis Melbourne office block

A private investor has paid $3,686 per square metre for a 434-square-metre whole office floor in the Melbourne CBD as a new report from Urbis shows strong demand from smaller investors for strata office space.

The investor paid $1.6 million for level five in 171 La Trobe Street, a Fender Katsalidis-designed 14-level office building in a deal negotiated by Savills directors Nick Peden and Clinton Baxter.

The sale set a new record for the building.

The previous record was $3,248 per square metre achieved in 2007 when a single floor sold for $1.41 million – the last time a floor has changed hands.

The Fender Katsalidis building stands on the corner of Russell and La Trobe streets, and according to Nick Peden, is widely regarded as the best strata office building in Melbourne.

Expectations were in excess of $1.5 million.

The floor space is leased to the existing owner-occupier until January 2013.

The building comprises 10 office floors – each individually owned – as well as two two-storey penthouses with projecting balconies, a ground-floor showroom on La Trobe Street and a 12-space lower ground floor car park.

It was constructed by builder LU Simon in 1991 and picked up a merit award from the Royal Australian Institute of Architects upon completion.

In 1995 it was subdivided into 13 units and in the early 2000s the 10 office floors were sold off individually.

The site was bought in two parcels for $3.4 million between March and September 1988. The lots were divided between the owners through entitlements in equity in September 1995.

In June Savills manager of office leasing Mark Bolis leased level eight in the building at $490 per square metre gross.

Peden and Baxter say the space attracted a great deal of interest from both investors and owner-occupiers keen to enter a market with such historically strong fundamentals.

“Clearly there remains some anxiety about world economies and at such times investors primarily, but also owner-occupiers with an eye to the future, seek out assets that will show both rental growth and capital appreciation over time and the Melbourne market has demonstrated its ability to do that time and again,” says Peden.

The 171 La Trobe Street office floor sale follows soon after a 410 square metre office floor in a new mixed-use development in Hawthorn (6 kilometres east of the Melbourne CBD) is believed to have changed hands after auction for around $2.375 million.

The strata space, level 6 at 523 Burwood Road, included a 38 square metre terrace and 12 secure car parks, was marketed by Hamish Burgess and Ben Baines, of Colliers International.

It had pre-auction expectations of around $2.45 million with a five year lease to Drive Projects from June this year.

According to a recent report by Urbis, Docklands could soon rival Melbourne’s historical office hot spot, Collins Street, with the Docklands precinct particularly sought after by small businesses in search of modern strata space in new buildings.

Roger Scrivener, Urbis director and author of the Melbourne Strata Office Market report, says the Melbourne strata market is now a well-established component within the overall investment office market.

The Urbis report found the Melbourne CBD strata office market is now well established and mature, with some 130 strata sales being recorded each year on average over the last decade.

“There are some 1,800 strata units within the Melbourne CBD, with an average sales turnover approaching 130 units per annum – this represents 7% of total stock,” Scrivener says

The Urbis report found three of the five new strata CBD office developments constructed since 2007 were within Docklands, though notably none had a Collins Street address.

These included:

  • Aquavista at 401 Docklands Drive, Docklands (205 units, built 2007)
  •  Site One at 757 Bourke Street, Docklands (53 office units, built 2007)
  • Q2 at 2 Queen Street, Melbourne (120 units, built 2008)
  • Life Lab at 198 Harbour Esplanade, Docklands (94 units, built 2008)
  • 373 King Street, Melbourne (30 units, built 2009).

Daniel Wolman, Colliers International executive of CBD sales, says commercial strata investments are generating strong interest from what would traditionally be residential investors, motivated by almost double the net yield returns.

“Commercial strata price points are within reach of most real estate investors,” he says

Wolman says he has noticed a distinct increase in demand for strata space in Docklands.

“We are seeing a continued growth in demand for good quality, purpose-built strata office facilities in sound locations and with strong sustainability features.

Docklands ticks all the boxes in this respect, and a growing number of tenants, investors and developers are jumping on the bandwagon.”

According to Wolman, the Docklands precinct has the potential to become a hotspot for businesses in the market for flexible, modern strata office space.

“The continued strong growth in white-collar employment that we are seeing in Victoria creates employment opportunities not only for medium and large organisations but also for small, fledgling businesses,” he says

He says existing office facilities for those businesses seeking smaller office space is poor, with a clear market demand for modern facilities that meet the demands of current office working practices.

Only one strata office project is under construction or actively proposed in Docklands – Lifestyle Working Collins Street at 838 Collins Street.

Wolman says there has been an overwhelmingly positive response for this development.

“Strata occupants look for several key features in new premises,” he says.

“Proximity to other office buildings is of significance, particularly as the majority of occupiers of strata office suites depend on the occupants of larger office buildings as their primary client base.

“Accessibility is also a crucial factor. Despite the continuing trend towards public transport, occupiers of strata office suites still require good private vehicle accessibility and parking facilities.

“And, as with the broader office market, the amenity of nearby retail, restaurant, bar and entertainment facilities is important to the strata office market,” Wolman says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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