Peakstone Begins $80m Speculative Office Redevelopment

Rebuild it and they will come. That is the strategy of privately-owned Peakstone as it starts swinging a speculative sledgehammer in the Melbourne CBD at its 637 Flinders Street office asset.

The Singapore-based property investment manager has kicked off an $80-million redevelopment of the former Victoria Police headquarters in the city’s Northbank precinct.

Its commencement comes despite Melbourne’s CBD office market being in free-fall, with record low demand for office space over the first half of 2021 and a rise in its vacancy rate to 10.4 per cent.

Meanwhile, JLL has reported signs of recovery in the overall Victorian market with its total office transactions in the state doubling to $999.7 million in the second quarter—its strongest quarter since the pandemic struck.

Reinforcing its confidence in the Melbourne CBD, Peakstone is carrying on with its 637 Flinders Street redevelopment regardless of not yet having secured any tenant commitments.

As part of its gutting and transformation of the building into a 14-level, A-grade campus-style office precinct, it is also adding an extra 2062sq m of office space to increase its net lettable area to 25,112sq m.

“It’s fair to say the market has had a decline but we’d like to think we are now at or near the bottom and moving into the recovery phase,” Peakstone’s head of Australia and New Zealand, Chris Khoo, said.

“As we work through the Covid vaccinations, life and business will start to get back to normal.

“It’s not tomorrow but we’re in a transition period where it will happen and I think that helps to give businesses confidence and we have started to see larger transactions happen in Melbourne again.

“So, yes, we are confident we can secure a major tenant during the development phase.”

Khoo said Peakstone had been in discussions with potential tenants and there were requirements in the market from the state and federal governments, as well as the healthcare and engineering and construction sectors.

He said there was an appetite in Melbourne’s city centre for well-designed buildings that meet the needs of a modern workplace and future workforce.

“Businesses needing to return to the market are now looking for more flexibility not only in lease terms but also flexibility in the nature of their occupancy,” Khoo said.

“Also, building features such as substantial balconies and large rooftop terraces such as at 637 Flinders Street have become distinguishing features that are now more front-of-mind for tenants than in the past.”

Privately-owned builder Built has been appointed as the contractor on Peakstone’s project, which it is funding with its own capital.

Construction has begun and completion is slated for the third quarter of 2022.

“637 Flinders Street is a rare infill opportunity in the city, sitting between the Yarra River and Melbourne’s traditional CBD grid, enhancing connectivity and making it a well-balanced workplace and lifestyle destination,” Khoo said.

The prominently located site occupies a 4200sq m opposite Lendlease’s Melbourne Quarter precinct and has 100m frontages to both Flinders and Siddeley streets.

Designed by Cox Architecture, the redevelopment will also have a 5-star NABERS Energy rating and a focus on wellness amenity.

In another redevelopment designed to attract businesses back to the Melbourne CBD, Newmark Capital has submitted plans for Melbourne’s David Jones menswear building at 299 Bourke Street.

The proposal includes the creation of loft-style offices on the dormant upper floors while the lower levels will remain dedicated to premium retail.