$1.375billion metro office sales sets record 2016, promising outlook for 2017

Colliers International releases Melbourne Metro Office Market sales report

2016 was a bumper year for Melbourne’s metro office market with $1.375billion worth of sales transacted across 39 deals, and demand showing no sign of weakening, according to Colliers International’s latest sales report.

Record figures for assets such as the Como Centre in South Yarra ($236.5 million), 75 Dorcas Street in South Melbourne ($166million) and 452-454 Johnston Street in Abbotsford ($88.8million) pushed the total up $285million on the previous calendar year, despite 10 less deals being concluded than in 2015.

Colliers International were instrumental in the metro office market, negotiating 13 of the total deals, totalling $677million.

The Melbourne metro office market comprises about 3.18million sqm of office space and, by definition, excludes Docklands, Southbank and St Kilda Road.

Colliers International’s Peter Bremner said activity was strongest in city-fringe areas, with 27 of the 39 deals taking place in Richmond, South Melbourne, Port Melbourne, Abbotsfordand East Melbourne.

“There were no office sales over $5million in the south-east or north-west regions,” he said.

Mr Bremner said the bulk of interest had come from private investors, who signed 12 deals greater than $5million in 2016. Developers were responsible for seven sales, while owner-occupiers claimed six.

“By sales volume, institutions represented the highest proportion of value, investing $485million or 35 per cent of the total sales,” he said.

“Interestingly, there were only three sales to offshore buyers in this market, for a total of $45.2million.”

Mr Bremner said several syndicates and family office buyers had started to establish a presence in the office investment marketplace.

“Newmark, a local Melbourne-based syndicate, purchased the Como Centre for the highest value deal of 2016 at $236.5million,” he said.

Mr Bremner said transactions of office buildings with redevelopment potential, such as 200-216 Victoria Parade in East Melbourne, were a clear trend for 2016.

“We saw high competition for these assets all through last year and expect this to continue this year and into next,” he said.

Mr Bremner said the outlook for the remaining three quarters in 2017 was positive, with more yield compression below six per cent expected, especially in the city-fringe and inner-east regions.

“There is still a lot of demand and not much stock,” he said. “Owners are reluctant to list their assets at present, due to unappealing alternate forms of investment when they sell.

“However, we are anticipating another strong year for the Melbourne metropolitan office market, with low interest rates, uncertainty in the US, and Australia’s reputation as a safe-haven property market likely to fuel demand.”

Colliers International Investment Services metro office sales report Como Centre South Yarra

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