Strata office projects quickly becoming the preferred development option

Colliers International assists developers in catering to increased demand for strata office assets

Developers are honing in on strata office projects, as Melbourne’s CBD grid rapidly becomes saturated with residential apartments.

Aurora Melbourne Central and 420 Spencer Street are among several strata office developments that have cropped up since the start of 2016, filling the void of new properties across the city and immediate city fringe.

Colliers International’s Chris Ling and Anthony Kirwan have been instrumental in feeding the demand for new offices, concluding 23 sales for more than $30million since January last year.

“Historically, residential capital values have outperformed those of commercial offices but we are beginning to see commercial office space become the more viable option due to the lack of supply and high demand,” Mr Ling said.

“We’ve noticed local and offshore developers are gradually transitioning from a residential development strategy to focus on commercial office and mixed-use projects.”

Mr Ling said developers had started to realise the potential of strata office assets, which could be a more feasible investment option.

“Capital values being achieved across these developments have been reaching in excess of $10,000 per square metre,” he said. “Combined with a lower construction cost, developers are able to increase their profit margins.”

Mr Kirwan said Melbourne’s saturation of residential apartments, paired with low build costs for new offices, were the key catalysts for the shift.

“The limited supply of new strata office properties is fuelling demand,” he said. “Often these office assets have been offered as an empty shell, with the fitout the responsibility of the future owner or tenant.

“When you also consider the greatly reduced settlement risk due to strong demand from local owner-occupiers, it’s easy to see why developers are leaning toward office projects.”

Mr Ling said strata office projects were particularly attractive to offshore purchasers because their restrictions on purchasing commercial property were at a minimum, when compared to residential.

“With limitations of freehold ownership, economic and political instability and several other factors, Melbourne is considered a safe haven for investment, particularly for Asian investors,” he said.

“Colliers International capitalises on this demand by devoting a specialist Asia markets platform to facilitate all Asian enquiry and interaction with regards to inbound and outbound capital.”

Mr Kirwan said that although financial restrictions were intensifying, Chinese investors continued to find “innovative” ways to extract funds.

“We are also seeing an increase of capital inflows from neighbouring countries, such Hong Kong, Malaysia and Singapore, as China slows somewhat,” he said.

“Off-the-plan acquisitions, such as strata office projects, give offshore investors a prolonged period to organise finances, as the balance is payable upon completion, which is often more than 12 months away,” he said.

Three key, Colliers International-marketed strata office project transactions since January 2015 include Collins Tower for a total of 1478sqm on behalf of Stamoulis Property Group ($9.8million), Aurora Melbourne Central for 3100sqm for UEM Sunrise ($20.2million to date), and 420 Spencer Street for 1156sqm for Vicland Pty Ltd ($2.8million).

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