By Chris Ling and Tom Appleby
Investment Services, Australia
Strata offices have become a hot market in Australia’s major capital cities, especially Sydney and Melbourne, cutting into the already limited supply and in turn creating pent-up demand.
Our strata office experts in Investment Services Chris Ling, based out of the Melbourne CBD office, and Tom Appleby, based out of North Sydney, have identified the catalysts behind the phenomenon, saying sales have skyrocketed in the past 12 months.
“The recent lack of supply of new strata office projects in Melbourne and Sydney has led to a need for construction of pure strata office buildings or mixed-use developments to incorporate strata units,” Chris Ling said. “This means owners of freestanding office buildings could potentially ‘strata down’ levels and suites to capitalise on the record per sqm rates being achieved in the current market.”
Tom Appleby said rents in the major capital cities had increased significantly during the past year, with the historically low interest rate environment making owning an office floor more attractive and financially viable.
“Significant commercial stock withdrawal for residential development is pushing commercial strata values to all-time highs,” he said. “These rapidly increasing rents are also causing tenants to consider purchasing their office space instead of renting.”
A key case in point is the Aurora Melbourne Central development at 224 La Trobe Street in Melbourne:
The 3,100sqm project has been valued at circa $32million, reaching record rates up to $10,350 per sqm.
“Selling off individual strata suites offered the developer, UEM Sunrise, the best possible return on investment,” Chris Ling said. “Buyers were a diverse mix, with 50 per cent investors and 50 per cent owner-occupiers. Sixty per cent of the buyers were from offshore – specifically Hong Kong, Malaysia, Singapore and China – and the remaining 40 per cent were locally based.”
Since 2016 only 4,578m² of new strata office space has been delivered to the market (from the Aurora Melbourne Central and Collins Tower at 580 Collins Street by Stamoulis Property Group.) – this coupled with strong population growth in Melbourne (expected to reach 8 million people by 2050) the strata office supply is still well under the expected needs of the market.
Nationally the benefits of strata projects include significant stamp duty savings and depreciation benefits for purchasers; new or spec fitouts for occupiers; lower construction cost for developers; lower settlement risk for commercial buyers; and little restriction for offshore investors, unlike the caveats on residential property.
Looking forward, strata amalgamations are likely to become more prevalent, which would create the need to introduce new units to Melbourne and Sydney, either by building new projects or fitting out existing freeholds.
“In the meantime, investors are increasingly looking to purchase opportunities interstate,” Tom said.
Leveraging our National Strata Platform:
Colliers International is the only agency with a dedicated Strata team, with agents from across Australia focussed on understanding and servicing the strata market. In 2016, the team sold over 14,500 sqm of strata valued at $107.4 million, with average rates of $6,430 / sqm and average yields of 6.90%.
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