Prime South Melb Office to Fetch $18 Million

A prime South Melbourne office building has been listed, with price expectations of more than $18 million, as suburban office markets nationally increasingly attract the attention of local and offshore investors with record sales over the last 12 months.

The 31 Market Street (corner Clarke St) property comprises a fully leased, three level building with undercover parking for 41 cars. It is securely leased with a WALE of 4.5 years to ASX listed, national and government funded tenants, returning $1.055 million per annum.

The building has recently been extensively refurbished, including comprehensive tenant fit-outs, minimising any future capital expenditure requirement. The 2,565 square metre building sits on a 1,150 square metre site with the corner situation providing the building with excellent natural light, access and exposure.

The property is being marketed by Clinton Baxter, Nick Peden and Benson Zhou of Savills CBD and Metropolitan Sales in conjunction with Danny Clark, Andrew Hansen and George Burbury of Knight Frank.

Mr Baxter said fringe properties were now very much on the agenda of astute investors, especially as opportunities in CBDs dried up.

“CBD investment markets have been hot over the last four years and inevitably that has led to a shortage of stock and record low yields. At the same time a pick-up in CBD leasing has seen vacancy tighten and rents rise.

“City fringe properties like 31 Market Street are not only offering more attractive yields than CBD markets but also lower rents, car parking and lifestyle advantages, and therefore greater tenant demand. This is a heady concoction for investors looking for both attractive yield arbitrage and secure leasing environments,” Mr Baxter said.

Mr Clark said the potential for capital growth was also strong in non-CBD markets as rapid population growth was also a strong driver of tenant demand and competition for development opportunities.

“While 31 Market Street is essentially an investment play, prospective purchasers will also have the property’s potential future development upside at the back of their mind.

“It’s certainly a possibility that should the property be rezoned, as has happened with properties at Fishermans Bend for example, the new owner could look forward to windfall growth in land values and development potential. With Melbourne’s population growing at such a massive rate you would think it’s really only a matter of time,” Mr Clark said.

According to Savills Research, a record $1.39 billion was spent on Melbourne fringe property in 2016, up 31 percent over the previous year, with yields at an average 6.63 percent, offering an attractive 88 basis points differential over CBD yields at 5.75 percent. Foreign investors dominated sales with 84 percent of purchases.

The property is for sale by Expressions of Interest closing Friday 21 April at 2pm.