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NEWS

2016 proves an exceptional year for the commercial property sector

Colliers International’s asset class directors reflect on the year that was

COLLIERS INTERNATIONAL'S VICTORIAN BUSINESS

“2016 was characterised by record low interest rates, both globally and domestically. The issuance of negative-yielding government bonds in Asia and Europe spurred the global hunt for yield throughout the year, with Australian commercial property assets becoming even more appealing in terms of risk-adjusted returns. Australia has resonated, and will continue to resonate, with foreign investors due to our consistent economic growth through cycles, our transparent financial system and our sound political and legal frameworks. Cuts to Australia’s official cash rate in May and August saw our domestic benchmark fall to a record low of 1.5 per cent, ensuring that commercial property also retained its appeal with domestic investors.

Our Victorian business was named Commercial Agency of the year at the REIV Awards for Excellence, an outstanding coup starkly reflective of our strong response to the national and global commercial property climate. It was a record-breaking year for our transaction services businesses, with our Office Leasing team’s exceptional performance synonymous with the high level of activity in the market, which is supported by white-collar employment growth, falling vacancies, rising net-effective rents and restricted supply pipelines. With the Melbourne Metro Rail Project underway, the CBD office market has become even more appealing to businesses and their employees, which in turn creates tailwinds for the investment market. In line with this, infrastructure investment has played a key role this year, which bodes well for all commercial property asset classes. During the next four years, Victoria will see record infrastructure investment, which will play help propel the commercial property market forward.

We made major inroads on our emerging businesses, including Hotels, Healthcare & Retirement Living and Rural & Agribusiness, where we transacted Banongill, the largest deal on record for the state. Our retail business is thriving, with this year defined by increased buyer competition and lower volumes, as the Victorian market is starved of quality stock. Our strong collaboration across our business is one of our major growth drivers – for example, the transaction of the Blackstone industrial portfolio ultimately resulted in the management of our Real Estate Management team, its subsequent growth and enhanced capability.

Going into 2017, the relocation of our Melbourne East office from Clayton to Chadstone will transform this side of the business and position us in one of the best offices in metro Australia.” – JOHN MARASCO, state chief executive and managing director of Capital Markets and Investment Services

INVESTMENT SERVICES: MELBOURNE CITY SALES

“A record-breaking year for the Melbourne City Sales team began in January with a bang, selling 59-63 Bourke Street on a tight passing yield of 3.27%. The $9.8million retail freehold set the tone for the rest of the year, with premium yields achieved on multiple prime retail properties such as Shops 9-11/1 Little Collins Street, 306 Flinders Lane, Shops 2 and 3 of 377 Lonsdale Street, 2 Queen Street and 469 Elizabeth Street, just to name a few. The height of retail transactions for 2016 was achieved in November with the auction of the highly coveted Tavistock House, a rare CBD offering and the most sought-after of the year. Each of these properties commanded sub 5% yield and demonstrated the market’s insatiable appetite for prime retail property.

2016 was the year of Melbourne City Sales’ strata office domination. With countless listings and successful sales, a clear trend emerged throughout the year of a heightened demand from owner-occupiers. Vacant units and floors have commanded a premium over tenanted investments. Such was the case at 568 Collins Street, 838 Collins Street and 420 Spencer Street, where premium prices were paid for prime vacant office space. The team’s success has been ultimately recognised with the most sought-after listing of the year, UEM’s 224 La Trobe Street development Aurora.

The Melbourne City Sales team flexed into the CBD’s fringe. Set by the tone of a record-breaking sale at 407 King Street – which sold at a 100% premium to its 2013 sale price – the team secured a highly successful mixed-use warehouse portfolio and during the course of the year secured several more properties across North Melbourne, West Melbourne, Carlton and South Melbourne, with many more to come into the new year. Each property has been sold at a significant premium to the reserve, with 2 Lothian Street and 176 Adderley Street setting new benchmarks for their respective suburbs. What was revealed throughout the year was the market’s demand for prime city-fringe real estate as stricter CBD planning restrictions were implemented.

Office and carpark sales proved to be the cornerstone of the team’s year, with several significant transactions across both asset classes. 380 Flinders Street smashed carpark sales records at a rate in excess of $100,000 per bay. The team also wrangled in a $30million sale as it was parked into 16-32 Leicester Street, Carlton. Also transacted were office investments at 51 Queen Street and 438 Elizabeth Street, and are in final stages of closing the highly publicised 50 Franklin Street, a sale which has seen co-operation from the 18 stratified owners. The sale of 438 Elizabeth Street also received huge press and represents the team’s largest sale of 2016 at $75.6million. With such success in both asset classes, the team has forged its way to become the foremost authority on Melbourne carpark transactions and continues to maintain dominant market share in Melbourne CBD freestanding investments.” – DANIEL WOLMAN, director of Melbourne City Sales

INVESTMENT SERVICES: METRO SALES

“In 2016, the Melbourne metropolitan office sales market has seen roughly half the number of deals as we saw in 2015, however the total value will be similar. That is, there has been quite a few larger deals such as:

• 800 Toorak Road, Hawthorn East for $140 million

• 75 Dorcas Street, South Melbourne for $166 million

• 452 Johnston Street, Abbotsford for $88.88 million

• Satellite Corporate Centre, Mulgrave for $87.6 million

There have not been as many smaller sub-$20million sales, as private owners are reluctant sellers given the lack of stock to purchase and the low interest-rate environment.” – PETER BREMNER, national director of Melbourne Metro Sales

INDUSTRIAL

“The industrial business has experienced in excess of 30 per cent growth this year, with the organic growth within our team complemented by a significant increase in occupier services and capital markets transactions. We have sold more than $2billion in sales transactions and leased more than 350,000sqm of space, which is serviced by three offices in four core industrial logistics markets, being the Dandenong/Keysborough, Laverton/Derrimut, Epping/Somerton and ever-changing city-fringe markets. Some significant deals of note include the two Goodman portfolios, which we sold to Blackstone totalling $1.35billion.” – TONY IULIANO, national director of Industrial

OFFICE LEASING

“The Victorian Office Leasing team have had an exceptional 2016, concluding more than 260 leasing transactions for in excess of 270,000sqm of office space.

Our largest transactions include:

• 447 Collins Street - King & Wood Mallesons for 8,345sqm on behalf of Cbus Property

• 1 Malop Street, Geelong - WorkSafe Victoria for 13,212sqm on behalf of Quintessential Equity

• 67-81 Hoddle Street, Richmond - Guardian Childcare for 2,951sqm on behalf of a private company

• 572 Swan Street, Richmond - David Jones and Country Road Group Headquarters for 23,500sqm on behalf of Growthpoint Properties

Our market dominance continues with major leasing appointments on prominent buildings such as Rialto at 525 Collins Street on behalf of Grollo Group & St Martins, Wesley Place at 130 Lonsdale Street on behalf of Charter Hall, The Young Husband Woolstore in Kensington on behalf of Impact Investments and Building 1, 576 Swan Street on behalf of Growthpoint.

Our team also took home the REIV Marketing Award for Excellence for the ‘Best Leasing Campaign – budget over $10k’ for the innovative marketing campaign undertaken at 1 Malop Street, Geelong.” – ROB JOYES and ANDREW BEASLEY, national directors of Office Leasing

RETAIL SALES

“The Victorian retail market in 2016 has been characterised by increased buyer competition and lower transaction volumes, which have resulted in further yield compression across all retail sectors. Investor appetite is at unprecedented levels, as a new wave of domestic and international investors competes in a Victorian market that is starved of quality retail stock. Competitive tension has been most notable in the neighbourhood shopping centre market, which has seen Melbourne yields trend below 6.0% to sit at 5.85% compared to Sydney’s 6.08%. Notable transactions include Coles Coburg North Village trading on a capitalisation rate of 4.94% and 19th Hole Shopping Centre at 5.11% (excluding Coles supermarket, which is vacating). Retail as an asset class continues to attract a growing number of investors due to its defensive nature, long-term growth and core fundamentals; comparably higher yields, underlying land value and development upside, providing a balanced and insulated investment when compared to industrial, residential and volatile equity markets. The outlook for 2017 is positive for retail vendors/landlords, with discretionary spending coupled with food price deflation seeing strong sales growth, while the historically low cost of capital and a lack of stock ensure extremely strong investor demand.” – TOM NOONAN, manager of Retail Investment Services and TIM MCINTOSH, executive for Retail Investment Services

RETAIL LEASING

“The biggest story for Retail Leasing was the Debenhams deal. Demand for quality retail has been strong since St Collins Lane secured Debenhams Department Store, being the first to market since Diamaru opened their Melbourne store in 1991. Following the successful launch of Melbourne’s newest premium retail mall, St Collins Lane, after its $30million redevelopment by LaSalle Investment Management, Colliers International exclusively negotiated the 4,000sqm flagship anchor tenancy with renowned international retailer, Debenhams, on a 10-year lease. Debenhams is the longest standing department store retailer with a proud British heritage which trades from over 240 stores across 27 countries. This deal rounds off an overall successful year, with our team launching nine major projects campaigns and leasing more than 11,800sqm within shopping centres and 7,000sqm in CBD space.” – MIKE CRITTENDEN, director of Retail Leasing

RURAL & AGRIBUSINESS

“The sales activity in rural property is unprecedented. Significant transactions in all states of Australia have created new platforms of value in almost all categories. Australian business leaders, overseas investors and managed funds have all participated in the current vibrant marketplace. The international appetite for our safe, clean and efficiently grown primary produce will continue to drive demand into 2017 and beyond, due to lifetime low interest rates and a continuing favourable exchange rate.” – SHANE MCINTYRE, head of Rural & Agribusiness

HRL

“After a strong start to the year, unexpected regulatory changes across health slowed activity in mergers and acquisitions. Notwithstanding, Colliers International has been able to leverage its depth and breadth of sector knowledge to become not only a thought leader in the sector, but also trusted advisor to institutional funds and investors, as well as small to medium enterprises. Through this approach, we have been able to position ourselves as true subject-matter experts, with the likes of the AFR and market analysts reporting our findings or consulting us for our views. At the same time, sector participants look to us to help define their strategy and more importantly execute on it.” – SHALAIN SINGH, head of Healthcare and Retirement Living

HOTELS

“The student accommodation sector has witnessed significant growth in recent years, with an increase in international students, which has driven the appeal of Australia as a destination for Purpose-Built Student Accommodation (PBSA). This popularity has transformed an immature market into a sector that has seen significant investment in recent times from sovereign wealth funds and institutional investors. The volume of finance being injected into the PBSA market is reflected in the higher level of activity and development currently being witnessed. Development sites surrounding major universities have been highly sought after as major players jostle for market dominance, particularly in Melbourne and Sydney.” – GUY WELLS, associate director of Hotels

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