Increasing Investor Demand Fuels Vic Strata Retail Sales

Melbourne’s strata retail market has gained momentum over the past three to six months, with a series of notable transactions recently finalised in the CBD.

CBRE Melbourne City Sales Senior Negotiator Paul Tzamalis said there was an emerging shift in buyer preferences for retail investments, with investors increasingly targeting strata retail opportunities.

“Strata retail in the CBD has previously flown under the radar given an investor preference for freehold properties, however, with limited opportunities in the freehold market in the sub $5 million price range, investors are beginning to look at alternative options, notably strata shops,” Mr Tzamalis said.

Demonstrating this trend, CBRE recently sold the ground floor retail space of 11-17 Cohen Place in the CBD’s Chinatown district and Unit 1 at 50 Market Street.

The 270sqm Cohen Place site features dual entrances, a large commercial kitchen, existing hospitality tenant and desirable location within the city’s popular Chinatown precinct.

CBRE’s Tom Tuxworth, Paul Tzamalis, and Josh Rutman negotiated the sale on behalf of the private vendor. The site was sold to an offshore investor via a private campaign for $2.3 million, representing a yield of 5.22 per cent.

Mr Tuxworth said the campaign attracted strong interest from both local and offshore groups, with over 115 enquiries received for the site.

“Investors were attracted to the site’s prominent positioning in the Chinatown precinct and the lower price point than surrounding retail areas including Little Bourke Street.”

“The offshore buyer expressed how difficult they found it to acquire a well-positioned retail shop in Melbourne’s CBD, especially something which offers the opportunity to occupy in future,” Mr Tuxworth said.

Unit 1, 50 Market Street also marks one of the strongest strata retail deals in 2015.

The sale, on behalf of a local investor, was executed in an off market process, resulting in a sale price of $1.85 million and representing a yield of 3.9%.

“The growing affinity for strata retail properties is further being underpinned by a greater investor understanding of the sector, with offshore buyers particularly recognising the benefits of the growing high rise population and the effect this will have on rental rates in the future fuelled by tenant demand,” Mr Tzamalis added.

Despite increasing interest in the strata retail market, there is a significant lack of stock currently available in the CBD.

“Vendors are largely unaware of the worth of their stores. It was relatively affordable to buy a shop in the CBD close to five years ago, but since then it’s sufficient to say that prices could have improved by more than 50 per cent, in-line with improved retail rents and demand within the CBD,” Mr Tzamalis said.