Melbourne metro office investment cracks $1 billion for fifth year running

Melbourne suburban office sales surpassed $1 billion in value for the fifth consecutive year in 2018, according to Colliers International.

The group is forecasting another year of record investment in the Melbourne metropolitan market.

$1.08 billion worth of metropolitan office sales were recorded in 2018, for offices above $5 million with 44 transactions taking place.

This was an increase from $1.03 billion in 2017. 

Colliers International’s Peter Bremner, National Director of Metro Sales, said the most active market was the city fringe region, where just over $500 million of office buildings sold in 18 transactions.

This was followed by the Outer East region, where $300 million of office stock sold across 14 transactions.

“We predict another $1 billion-plus year in 2019 as buyers see value in the strong fundamentals of the Melbourne metro office market, as leasing conditions continue to turn in favour of lessors and rents continue to rise and incentives decrease across most regions," Bremner said.

“Whilst yields may not decline like they have in previous years, capital growth is still expected due to these favourable leasing conditions.

“Pre-commitment and speculative office construction will rise as residential development sites are converted back to commercial as the highest and best use.”

Melbourne’s metropolitan office market comprises 3.23 million square metre in NLA and has a current overall vacancy of 5.24%. 

Bremner said the hottest markets to watch in 2019 would continue to be those city fringe suburbs within the 3-5 kilometre ring around the CBD, including South Melbourne, Kensington, Fitzroy, East Melbourne, Abbotsford, Collingwood, Richmond and Cremorne.

The largest deal of 2018 in Victoria was the sale of 60 Brougham Street in Geelong for $115.25 million.

The office building was 100% occupied by TAC and purchased by Centuria for a passing yield of circa 6.90%. 

Followed by the sale of 21 Harcourt Parade, Cremorne, an office building that was pre-committed by MYOB and sold by Colliers International as a fund-through transaction to AXA for $100.1 million, reflecting a yield of 5.40%. 

The third priciest deal of 2018 was 452 Johnston Street in Abbotsford which transacted for $93.5 million at the start of 2018, with Abacus Property Group purchasing the Computershare headquarters on a yield of 5.85%. 

Private investors accounted for 51% of metropolitan office sales in 2018 (or 22 deals), following by owner-occupiers at 21% (nine deals).

This was followed by institutions at 12% of total transactions (five deals), offshore buyers at 9% (four deals), syndicates at 5% (two deals) and just one sale to a developer (2% of total transactions).