Rathdrum Spends $100m-Plus in Melbourne’s Fringe

Rathdrum Properties has bought up two office developments in Melbourne’s CBD as the city’s office investment market heats up.

Sydney-based Rathdrum Properties, owned by the Hannan family, acquired the seven-storey office tower at 2-6 Gywnne Street, Cremorne from Roche Holdings.

“It provides a solid platform to extend our office portfolio into Melbourne,” Rathdrum Properties director Richard O’Connor said.

“We look forward to seeing continued growth and demand in the fringe markets.”

The newly-completed building was bought for $41.5 million in a deal facilitated by Colliers in conjunction with Teska Carson’s Adrian Boutsakis and Luke Bisset, netting Roche a 4.79 per cent yield.

Roche currently has several office properties in development in the city.

“With several projects on the drawing board for Roche Holdings to be constructed and given the strength of the city fringe office market, the family felt the timing was right to sell this asset in a market starved of good quality investment offerings,” Roche director Nick Roche said.

The office fringe market in Melbourne has risen to prominence on the back of employees seeking more flexible arrangements around returning to the office and employers endeavouring to accommodate that.

“What we have seen is that with people wanting to work from home part of the time and wanting to go to the office but not yet to the CBD until it is safe, companies are looking for fringe suburbs with good public transport and amenities for staff but also easy access to the CBD,” Colliers’ Peter Bremner said.

“Cremorne is one of the hottest markets with increasing rental growth and tenant popularity that is also close to the city with a lot of amenities for staff.”

In its second office buy Rathdrum Properties recently acquired Terraplex’s eight-storey office tower at 570 St Kilda Road for $67.6 million with fully-leased initial yield of 5.41 per cent, bringing their total outlay to $109 million.

The deal was made through Cushman & Wakefield and CBRE.

“This is the first $60-million-plus asset to sell this year in Victoria and remains one of the most popular buildings on Melbourne’s most prestigious boulevard, with all major tenants re-committed ” CBRE’s Kiran Pillai said.

The property’s tenants include Simonds Homes, Accolade Wines and ALM Williams Partners with a WALE of over three years.

The rapid development of the precinct due to the expansion of the nearby Alfred Hospital will also benefit the new owners in the medium term.

The demand for office space in Melbourne has been higher than the historical average, according to recent Property Council of Australia data.

Vacancy rates in Melbourne have also increased by 11.9 per cent but this is in part due to office supply far outstripping demand.

“While aggregate vacancy levels have risen slightly from 11.9 per cent to 12.1 per cent, the driver of this has been new supply of office space, not a drop in demand,” Property Council of Australia chief executive Ken Morrison said.

Melbourne’s cap on 25 per cent of workers returning to the office has also had an effect and has yet to be lifted.

However, the S&P Global Ratings’ industry top trends 2022 report predicts that many employees want to continue working from home and this, along with any future pandemic measures, will increase office vacancies.

The report predicts that office landlords will have to either change lease terms or offer incentives.

JLL head of research Andrew Ballantyne expects employment growth will continue to drive demand for office space.

“The Australian labour market has proven to be very resilient with business surveys pointing towards robust employment growth over 2022,” Ballantyne said.