Amalgamations in Sydney and Melbourne flow through to new strata office supply

After years of price stagnation, dwindling supply and pent up owner occupier demand, commercial strata office rates have been pushed to record highs across Australia’s eastern seaboard, particularly in Sydney and Melbourne. 

With consistent year on year increase in office rents throughout Sydney and Melbourne and a record low interest rate environment, Colliers have been inundated with buyer demand from owner occupiers looking to acquire strata titled commercial assets. We have seen considerable growth in capital values as they have near doubled since 2015, in line with the growth of commercial freehold assets.

A historic focus on alternative uses including residential and hotel development has created a lack of new strata office supply with the scarcity factor having a significant impact on the increase in price. Tom Appleby and Chris Ling from Colliers Investment Services team have been calling on developers to strongly consider commercial strata developments as highest and best use.

With backfill recycling in existing commercial freeholds expected to result in an increase in vacancy, there is a strong opportunity for landlords to capitalise on significant demand, from both owner occupiers and private investors potentially look to strata down their asset/s.

What does this look like for Sydney?

The recent reform to NSW strata laws, in particular the introduction of the ‘75% rule’ (whereby at least 75% of lots within a strata scheme can opt to collectively sell), has seen countless commercial strata buildings being ‘amalgamated’ and sold to developers. Tom Appleby, Associate Director, Investment Services specialises in facilitating multiple collective sales, including the recent on-market sale of 68 Alfred Street Milsons Point.

Strata office buildings that have reached the end of their life cycle, particularly those with favorable planning controls in prime locations, are being aggressively targeted by savvy development groups. Recent and ongoing amalgamations have reduced the availability of existing strata office accommodation.

With a significant supply of new freehold office stock approaching, Colliers expects vacancy rates to rise in dated commercial freeholds, and such, increase the opportunity for owners to strata down buildings. The appetite from owner-occupiers and private investors is healthy. 

In Sydney’s North, approximately 60,000sqm of commercial strata stock is slated to be withdrawn from the market in the coming years;  a new strata office development would be wholeheartedly embraced and absorbed by the deep pool of demand.

Sydney north

68 Alfred Street Milsons Point NSW 
Sold for $48,000,000

How is this reflected in Melbourne?

The Melbourne office market has similarly seen significant rental and capital growth since 2015 with a strong surge of owner occupiers and investors looking to capitalise. Compared to other major cities across the eastern seaboard, Melbourne has had more supply of commercial strata projects including Lendlease’s Lifestyle Workings at 838 Collins Street and most recently UEM Sunrises’ development at 224 La Trobe Street. However, this supply has not kept up with the considerable demand which has consistently seen record prices being achieved.

La trobe melbourne

224 La Trobe Street, Melbourne VIC 
Sold for $33,000,000


Within the past 12 months, Chris Ling, Associate Director, Investment Services    has observed a strong uptake in the number of new commercial strata buildings being built, as land owners and developers look to investigate the highest and best use for the sites. With considerable supply of hotel and residential accommodation in the Melbourne CBD strata office projects offer the highest value due to the  record rates being achieved in the market. This new solution is set to benefit Vendors and their sites, enabling them to extract the most value from the development.

For the developer, the benefits of strata office developments include; lower build costs, lower settlement risk and unrestricted buyer demand throughout Asia and other offshore destinations.

Within the past 12 months, Chris Ling, Associate Director, Investment Services    has observed a strong uptake in the number of new commercial strata buildings being built, as land owners and developers look to investigate the highest and best use for the sites. With considerable supply of hotel and residential accommodation in the Melbourne CBD strata office projects offer the highest value due to the  record rates being achieved in the market. This new solution is set to benefit Vendors and their sites, enabling them to extract the most value from the development.

For the developer, the benefits of strata office developments include; lower build costs, lower settlement risk and unrestricted buyer demand throughout Asia and other offshore destinations.

To conclude  

It is without doubt that, the lack of available development sites, as well as a focus on residential and hotel development, has created a shortage in supply of new commercial strata development especially in Victoria and New South Wales. Strata reforms in New South Wales have further reduced the available strata accommodation providing an opportunity for developers and land owners to capitalise on the buyer demand that has been evident throughout Australia’s eastern seaboard.

Related Experts

Tom Appleby

Associate Director | Sydney Metro Sales

Sydney North

Initially joining Colliers in 2015 to work alongside National Director Jon Chomley as a Capital Markets analyst, Tom has grown organically through the Colliers system, gradually applying his analytical skills, and gravitating towards, the sale side. Now working closely with Henry Burke, the head of the Sydney North Investment Services team, Tom has established himself as a market leading real estate sales agent on the Lower North Shore of Sydney. 

Specialising in selling commercial / retail property (freehold and strata) and development sites (raw and DA approved) on the Lower North Shore of Sydney, Tom has built a reputation for being a driven, personable, meticulous agent who is clearly passionate about real estate.

Over the course of Tom’s 7 years’ in the property industry, Tom has developed a strong interest in site consolidations i.e. strata amalgamations and collective freehold sales. As a lifelong local resident, Tom possesses an intricate understanding of what’s happening in and around the Lower North Shore of Sydney, regularly attending local council meetings to stay on top of governance.

Internally, Tom is actively involved in Colliers’ key initiatives, including Portfolio Auctions, Restructuring Property Services (RPS), and Asian Investment Showcases, and forms an integral part of Colliers' National Strata Practice Group and National Premium Investments Practice Group.

Tom’s background is in property and finance, having previously worked for JLL and an independent financial services company, Evergreen Finance.

Tom sits on the Property Council of Australia's (PCA) Future Directions Committee.

To learn more, visit Tom's profile page to get in contact today.

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Chris Ling

Associate Director | Melbourne City Sales

Melbourne CBD

Chris is an Associate Director within the Melbourne City Sales Team primarily specialising in office and retail assets within the City of Melbourne. In his position he works closely with a diverse range of clients including high net worth privates, small to medium size businesses and developers. He is dedicated to exceeding client expectations while managing their transactions and providing professional, strategic advice with regards to their commercial property matters. As head of the National Strata Platform, Chris prides himself in building and maintaining long term relationships with a range of Colliers International’s national clients and liaises directly with a team of specialist agents dedicated to the strata market.

Having completed a Bachelor of Environments majoring in (Property) and achieving the Dean’s Award in the Masters of Property at the University of Melbourne, he has gained strong technical knowledge of commercial property as well as an intricate understanding of the commercial property market and the most active buyers.

 

Highlight Transactions

Aurora Melbourne Central - 224 La Trobe Street - ~$31,000,000 (circa $10,200/sqm 

Collins Tower, 580 Collins Street - $5,000,000 

Level 5, 100 Collins Street - $3,450,000

Level 4, 100 Collins Street - $3,200,000

Level 4, 306 Little Collins Street - $2,580,000

Mering House, 278 Collins Street - $2,750,000 to $2,880,000

Level 2, 55 Exhibition Street - $3,000,000

Level 9, 221 Queen Street - $3,000,000 

Lots 2 & 3, 420 Spencer Street - $2,800,000 

Shops 9 & 11, 1 Little Collins Street - $2,640,000

Level 5, 271 William Street - $2,500,000

67 Pelham Street, Carlton - $820,000

Level 5, 171 La Trobe Street - $2,465,000

Level 2 & 3, 501 La Trobe Street - $2,310,000 - $2,380,000

Level 7, 552 Lonsdale Street - $2,000,000

Half Level 4, 11-19 Bank Place - $2,300,000

Level 3, 377 Little Lonsdale Street - $2,000,000

Corner Level 2, 2 Collins Street - $1,130,000

Level 7, 313 Little Collins Street - $1,252,000

Suite 202, 546 Collins Street - $1,000,000

Suite 310, 546 Collins Street - $1,175,000

Ground Floor, 501 Little Collins Street - $1,040,000

28 Aquitania Way, Docklands - $1,675,000

18 Aquitania Way, Docklands - $1,650,000

10 Morrison Place, East Melbourne - $3,000,000

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