Melbourne CBD office transactions hit a record high in 2017 with 20 deals completed for a total transaction value of $3.88 billion according to Savills Australia’s latest Quarter Time Office research report.
The total reflects a 207 per cent increase on 2016 and is more than double the 10-year average of $1.8 billion.
The results underpin a historically high year for greater Melbourne, including the CBD, fringe and suburb areas, which tipped a total $4.77 billion of office sales, marking the strongest 12 months since 2014.
Savills Australia associate director of Research, Monica Mondkar, said the CBD’s sales volumes were supported by strong investor demand taking advantage of the low interest rate and low yield environment.
“Foreign investment levels were at their highest on record last year,” she said.
“Out of the 20 office properties sold in Melbourne’s CBD, foreign investors purchased 14 for a total consideration of $2.62 billion.
“This buyer class dominated the market, making 55 per cent of purchases by value, followed by trusts with 15 per cent and funds with 6.0 per cent.”
Mondkar said developers had led vendor activity in the CBD, divesting their share of five prime office projects, including 839 Collins Street, 477 Collins Street, 447 Collins Street, 311 Spencer Street and 405 Bourke Street.
839 Collins Street was pre-sold to financial services company Challenger and fund manager Invesco last January for $430 million at the same time as a deal was struck with ANZ Bank to become the anchor tenant upon completion of the Victoria Harbour precinct in 2019.
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“Five fund-through deals totaling $1.88 billion were transacted at sub 5.0 per cent market yields, which were also sitting at historical lows and coincide with the Reserve Bank of Australia’s (RBA) record low cash rate of 1.5 per cent,” she said.
“These projects are slated for completion between 2019 and 2021.”
Mondkar said that the Melbourne CBD’s vacancy rate had been contracting since December 2014 and would remain tight for the next two years, until new supply started coming online in 2019.
“This has led many developers to kick-start new office developments,” she said.
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Savills Australia state director of Capital Transactions, Ben Parkinson, said the skyrocketing office demand was being fueled by Victoria’s economic and population growth and growing full-time employment numbers, which were the highest in the country.
“The record spend in the CBD is in part a reflection of Melbourne’s livability status and projections that it is on track to become Australia’s most populous city,” he said.
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“Other factors include the extremely close ties of Melbourne’s nation-leading education sector to off-shore investment, and the relative simplicity of Melbourne’s landscape, which has made it much easier for foreign investors to understand and transact.”
Parkinson said the current yields being achieved across the city were another drawcard, particularly when compared to the Sydney CBD office market.
“We expect foreign investor appetite to remain buoyant for Melbourne assets, particularly those offering medium- to longer-term WALEs,” he said.