Signs of Life as Melbourne Office Sells for $20m

Amid uncertainty in office markets due to the ongoing economic impact of Covid-19, Melbourne-based property investment group Collective Capital has snapped up a suburban Melbourne office building for around $20 million.

Located at 454-472 Nepean Highway, Frankston, the property comprises a five-level building with a net lettable area of 6254sq m and ground floor retail on a 2501sq m site, with three street frontages and parking for 142 cars.

In an off-market deal brokered by CBRE's Mark Wizel and Melbourne middle markets director Josh Rutman, the largely government tenanted building in Melbourne’s south-eastern bayside was sold 78 per cent leased with a net passing income of nearly $1.24 million. The yield was not disclosed.

The sale is a positive sign for a sector hard hit in the early stages of Covid-19 when the large-scale shift to working from home caused the suspension of some of the country’s largest office campaigns, and now, as vendors and purchasers fall out over post-pandemic prices.

Wizel said the result reflected the property’s "defensive tenancy profile"—a sought-after characteristic as challenges around the office tenant market continue to gain momentum.

"This was an astute purchase which delivered a very satisfying level of income security at a time when income security is at a premium across all types of investment classes.

"Interest in this and other defensive income properties, especially non-discretionary retail, has risen markedly in recent times and should continue to escalate while uncertainty remains," Wizel said.

The growing trend of a decentralised workforce, with office workers preference shifting to working either at or closer to home to reduce travel times without compromising productivity was also becoming a factor under consideration for investors, according to Rutman.

"Investors are seeking out opportunities where they can reposition buildings to cater for these changing worker needs in strategic locations which will be able to service a specific tenant catchment or industry.

"This building, and others like it, are well-placed to come through the current crisis in good shape."

Rutman said while there was little doubt that risk was being assessed "more prudently" at present, Melbourne’s white-collar tenancy diversity was a positive in driving medium- to longer-term confidence in the market.

Collective Capital's director Nicholas Thompson said he was confident the property would provide strong returns.

"The asset was strategically targeted due to its very strong government and government-funded tenancy profile, which, during these uncertain times, will provide our investors with a high level of income security," Thompson said.

Although lease transactions had slowed during the coronavirus pandemic, CBRE’s head of suburban office leasing, Gianni Macdonald, said the Melbourne metropolitan office market had seen a significant increase in enquiry from government tenants looking for fitted tenancies close to train stations.

"Buildings that are easily accessible by public transport and have tenancies ready to go are seen as a 'no-risk' solution for occupiers looking for new office space."