Foreign investors push Melbourne CBD office sales to record high

Office transactions in Melbourne’s CBD have hit a record high, with 20 deals brokered throughout 2017 for a total of $3.88 billion, a 207 percent increase on 2016 and more than double the 10-year average of $1.8 billion, according to Savills Australia’s latest Quarter Time Office research report.

The unprecedented results underpin a historically high year for greater Melbourne, including the CBD, fringe and suburb areas, which tipped a total $4.77 billion of office sales, marking the strongest 12 months since 2014.

CBD sales volumes were supported by strong investor demand taking advantage of the low interest rate and low-yield environment.

Foreign investment levels were at their highest on record last year. Out of the 20 office properties sold in Melbourne’s CBD, foreign investors purchased 14 for a total consideration of $2.62 billion.

“This buyer class dominated the market, making 55 percent of purchases by value, followed by trusts with 15 percent and funds with 6percent,” said Monica Mondkar, Savills Australia associate director of research.

Mondkar said developers led vendor activity in the CBD, divesting their share of five prime office projects, including 839 Collins Street, 477 Collins Street, 447 Collins Street, 311 Spencer Street and 405 Bourke Street.

“Five fund-through deals totaling $1.88 billion were transacted at sub-5.0 percent market yields, which were also sitting at historical lows and coincide with the Reserve Bank of Australia’s record low cash rate of 1.5 percent,” she said.

These projects are slated for completion between 2019 and 2021.

Ben Parkinson, Savills Australia state director of capital transactions, said the skyrocketing office demand was being fueled by Victoria’s economic and population growth and growing full-time employment numbers, which were the highest in the country.

“We expect foreign investor appetite to remain buoyant for Melbourne assets, particularly those offering medium to longer-term WALEs [weighted average lease expiry],” he said.