Melbourne CBD office investment set to end year on a high

Melbourne CBD office investment set to end year on a high
Staff ReporterDecember 7, 2020

The Melbourne CBD commercial property market has performed strongly over 2019, continuing its momentum from the preceding year and setting record capital value rates and sharp yields, said Colliers International. 

According to its data, the Melbourne CBD market has performed exceptionally well year-to-date with a total of 12 middle market assets having transacted between $10 million - $100 million as at October 2019. 

Total transaction volume of sales is approximately $475 million averaging a capital value rate of over $15,000 and a sharp yield of 2.67%.

Daniel Wolman, Colliers International National Director of Melbourne City Sales, said the office investment market had been fuelled by the record low vacancy rate of 3.3%, one of the lowest vacancy rates we have experienced since 2008. 

“This has translated into the continued rise in rents and capital values, leading to further compressions of yields,” Wolman said. 

“We are seeing more and more local add-value players competing for high quality middle market assets within the Melbourne CBD. 

“The shortage of stock has also led to institutional players entering the $10 million - $100 million price bracket which is not traditionally explored by institutions.” 

Whilst the number of transactions decreased from 2018 and then remained steady throughout 2019, initial yields have demonstrated a strong downward trend with capital value rates creeping upwards, averaging $15,000 per square metre. 

The most recent sale of Swann House, 22 William Street, Melbourne demonstrates a sharp yield of 2.55%, in which sub 3% yields are becoming increasingly common place. 45 Exhibition Street, Melbourne which transacted in April 2019 showed a record high capital value rate of $17,562 and a yield of 1.33%. 

“The Reserve Bank of Australia cash rate cut to the current 0.75% has arguably fuelled the confidence of the commercial investment market, providing for a lower cost of borrowing coupled with an increase in appetite for quality commercial property offerings from investors and add-value players,” Colliers’ Oliver Hay said. 

“We anticipate this trend to continue throughout the rest of 2019. The extremely tight nature of middle market assets within the Melbourne CBD, coupled with the record low cash rate and positive investment sentiment will continue to fuel and provide a strong foundation for 2020.”

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