Syndicators vie for position in Melbourne’s commercial market

​Melbourne, 28 May 2013- Syndicators and high net worth private investors are driving a marked pick-up in commercial investment activity in Melbourne’s City Fringe and suburban office markets according to a new analysis from CBRE.

With the cost of debt at new lows and prime investments yielding upwards of 8%, buyers are increasingly chasing commercial property opportunities, with CBRE’s analysis highlight that sales volumes were considerably higher in the first quarter of 2013 relative to 2012.

CBRE Director of Metropolitan Investment Properties, Justin Clarkson said syndicators were leading the charge with established players such as Australian Property Network, Cyre Trilogy, Vantage, Arena and Property Bank all active in the market at present and a large number of new players emerging.

“Astute investors, particularly syndicates and high net worth privates, are capitalising on the strong fundamentals in Melbourne’s City Fringe and suburban office markets,” Mr Clarkson said.

“We expect the depth of interest and the relative shortage of opportunities will place downward pressure on yields, particularly following the additional 25 basis point reduction in the cash rate announced this week by the Reserve Bank.”

CBRE’s review highlights that almost $400 million worth of City Fringe and suburban office assets were transacted in 2012. This was considerably higher than 2011 and preliminary sales figures for Q1, 2013 highlight that activity is rising further in 2013.

Significant transactions include the $7.7 million sale of 13 Compark Circuit, Mulgrave, and the $16 million sale of the Vic Roads building at 12 Lakeside Drive, Burwood East.

However, CBRE Senior Negotiator Jamus Campbell said investors were continuing to favour fully leased stock given the continued caution in relation to risk.

“Risk is being heavily priced and we are seeing a large gap between the yields on prime and secondary investment property,” Mr Campbell said.

Other points highlighted in the CBRE report include:

 Developers remain cautious in committing to new projects due to funding constraints with only 3,500sqm of new office space due for completion within the City Fringe

• Tenant demand appears strongest in the City Fringe / Inner East regions and limited supply should translate to a stabilisation and potential decline in vacancy rates which are currently ranging between 6% and 7% 

• Rents within Melbourne’s Inner East A-grade office stock have risen 4% so far this year to an indicative range of $300 to $340 per square metre net, with incentives having stabilised to approximately 10% net 

“Australian institutions have the cost of debt as low as 5% and with A-Grade yields averaging around 7.5%-8.5%, the attraction of investing in Melbourne’s metropolitan investment market is continuing to increase,” Mr Campbell said.

“With syndicators, privates and funds all vying for a piece of the pie, we expect to see positive growth in the market in the year ahead, building on the improvements recorded in 2012.”