More than $1billion CBD transactions year to date consolidates strength of market
Bank cuts and newly imposed tax regulations have cast a negative vibe over Melbourne’s commercial property conditions but according to a leading agent, the market has “never been stronger”.
Factors such as bank cuts making it difficult to borrow funds, increased taxes for foreign investors, land tax increases and offshore tax regulations have put a dampener on the record-breaking year-to-date results, says Colliers International’s Daniel Wolman.
The Melbourne City Sales director said that despite the negative talk, Melbourne is in the middle of what is arguably the greatest commercial property boom in the city’s history.
His recent sale of 8 Palmerston Crescent, South Melbourne, in conjunction with colleagues Oliver Hay and Matt Stagg, is the latest in a string of multi-million-dollar transactions at the core of ongoing competition for CBD and city-fringe assets.
“We have already seen more than $1billion in transactions in the Melbourne CBD this year and with the high-profile stock currently on the market, there is close to another $2billion to drop,” Mr Wolman said.
“Capital is reaching our market faster and stronger that we’ve seen before and it doesn’t look like slowing down.”
Mr Wolman said Melbourne’s capital rates remained the strongest against many other major cities, averaging about five per cent, in contrast to Singapore at four per cent, Tokyo at 3.7 per cent and Hong Kong at 2.9 per cent.
“Just recently, we saw Hong Kong investors spend 120million on Lloyd Williams’ car park at 114 Flinders Street, representing a circa five per cent yield,” he said.
“On top of this, property developer Jeff Xu purchased 85 Spring Street for $75million from Grocon, and local player Salvo Property Group has purchased a 1,600-unit project in Fishermans Bend for more than $40million.
“This is evidence of the capital flowing through our market and the ongoing demand we are constantly receiving, with clients coming into our offices from Victoria, interstate and offshore.”
Other market-leading sales include Newspaper House at 247 Collins Street, which sold to an offshore investor for $35million, representing a yield of almost four per cent; 500 Swanston Street, which sold to a student accommodation group for $25million; and 496-508 La Trobe Street, which sold to Holder East for about $25million, the Chinese developer’s fifth CBD purchase in three years.
“Notably, the World Trade Centre sold for $267.5milliom, showing close to a $100million capital increase in the two years since it was last sold,” Mr Wolman said.
Almost $2billion of commercial real estate is on market or expected to come to market this year, including 420 St Kilda Road, valued at about $70million, 628 Bourke Street at about $180million, and 390 St Kilda Road at about $90million.
Mr Wolman said that while interest rates remained historically low, and with the pent-up demand for Melbourne’s limited asset supply, 2017 would end up another record year for the property market.
“When coupled with the CBD’s vacancy rates falling from seven per cent to 6.4 per cent in the six months to January, and expected to continue falling to 4.2 per cent in 2018, we will continue to see yields compress and prices increase,” he said.
“These sales just scratch the surface of activity that’s occurred in the first five months of this year. As history shows, the second half is always much stronger so we expect to see more than double the transactions and double the volume of dollars.”