Investment in strata office assets in the Melbourne CBD has almost doubled in the first quarter of 2021 as yield-hungry investors look to take advantage of the imminent post-Covid-19 return-to-office.
Figures compiled by Colliers International show that during the first three months of the year, 17 commercial property transactions were made in the Melbourne CBD, totalling $33.4 million.
The results is a marked improvement on the same period in 2020 during pandemic lockdowns when 10 deals, worth $17.3 million, were completed.
Colliers International Melbourne city sales manager Anthony Kirwan said the city’s CBD strata office market had proven a safe haven during challenging conditions for investors and owner-occupiers.
“Commercial assets in the city have remained highly sought after, despite significant Covid-related disruptions over the past year,” Kirwan said.
“The strata office market in the CBD—always a popular destination for investment and among owner-occupiers—has proven to be an extremely resilient market even in the most unpredictable of times.”
During the quarter, the average sale price was $1.96 million, with an average capital value of $11,000 per square metre.
Larger whole floor offices are particularly sought after, so businesses can control who comes into their space.
Kirwan said 70 per cent of purchases were made by owner-occupiers with the balance acquired by investors from in Victoria, NSW and South Australia.
Significant transactions include the sale of a 283sq m, whole-floor office on Level 10 at 41 Exhibition Street for $4.8 million to an owner occupier, as well as the sale of Suite 306, 546 Collins Street to a NSW-based Chinese investor, who bought the 90sq m office for $850,000.
The sharpest yield achieved to date was 3.31 per cent for a whole floor, 300sq m mid-town office on level three at 405 Collins Street, bought by a local investor for $2.7 million.
According to the Property Council of Australia, 35 per cent of Melbourne’s CBD offices were occupied in March, while buildings in Sydney were 50 per cent full.
That figure is expected to increase during the coming months after the Victorian government wound back occupancy limits on office spaces, albeit at a slow rate.
Sydney’s strata deals, however, decreased by 32 per cent to 15 transactions as owners took a cautious approach to the new market and the shifting nature of how people are now working in Australia’s largest city.
New office space will also be a “wild card” for investors as more than 5.1 per cent of total stock is about to be added to the market.
Colliers investment services manager Tom O’Neill said the strongest enquiry in Sydney had come from tenants with leases expiring.
“The strongest buyers are solicitors, accountants, marketing, IT and superannuation firms,” O’Neill said.
“We recently sold 18/75 King Street for $1.2 million, a 93 sq m office which received 80 per cent of the 45 enquiries from tenants with upcoming lease expires.
“These buyers recognise the cost savings of servicing a loan versus renting, and the opportunity for capital gain.”