CBD and fringe strata offices are emerging as one of Melbourne’s most in-demand assets, with a number of developers now targeting the sector for strategic opportunities.
This trend is largely attributed to the low interest rate environment, with CBRE analysis noting an approximately 10-15% increase in strata values over the past 12 months.
CBRE’s Office Sales team of Tim Last, Tom Tuxworth and Nick Lower have also witnessed a sharp increase in enquiry levels compared to 2015, with average enquires for each office campaign rising from 42 in 2015 to 67 in 2016.
“This heightened demand can be attributed to a lack of supply for well-located office space and an increase in third party intermediaries recommending the purchase of office assets for self-managed super funds,” Mr Tuxworth.
A notable increase in developer demand has also been witnessed in the sector recently, with developers looking to take advantage of the current lack of supply in the market, high building rates and in many cases cheaper build costs.
Mr Last said strata office rates have consistently been ranging from $7,000/sqm to $11,000/sqm since 2015, which is comparable to rates being received in residential apartment buildings.
“This is giving developers confidence in the salability of the sector, particularly in areas with commercial 2 zoning where residential property cannot be developed. We are now seeing a string of boutique developments being marketed off-the-plan on the city fringe, with amenities that would be expected in apartment developments,” Mr Last said.
Demonstrating this trend, the Bialkower family is selling strata office space at 16 Dover Street, Cremorne, off the plan as part of a $7 million development project.
"Although we have previously focused on industrial projects, the demand for warehouse use has declined, so we have been looking at better ways to utilise the space," Developer Louis Bialkower said.
"With the assistance of CBRE, we identified a need for quality office space that would appeal to creative businesses that want to be close to the city and with access to good public transport - the response so far has been amazing."
The five-level office tower with a rooftop area comprises strata offices ranging from 65 to 790 square metres, all with balconies and car parking spaces.
Older strata office developments are also showing strength in the current market, as exemplified with The Edition on Flinders Lane - which is 98% sold with values almost doubling since its launch in 2012. Recent sales have achieved $10,000 per sqm for an 80sqm office, compared with rates about $5000 per square metre three years ago.
After purchasing The Edition from the Smorgon family in December 2010 for $17 million, Developer Brendan Sullivan is set to make over $60 million from subdividing, refurbishing and selling the building down as 41 individual office suites.
"Businesses looking at these projects have predominantly been boutique accountants, boutique law firms, financial planners and creative businesses including architects, interior designers and digital marketing agencies," said Mr Last.
"Investor have also been very active in these projects, as there are many benefits associated with off-the-plan commercial projects. These include tax savings related to depreciation, stamp duty savings and the potential to purchase the property up to two years from completion and benefit from the strong capital appreciation over this time," Mr Lower added.
In further evidence of the market demand for strata office projects, the CBRE Office Sales team has recently been appointed to sell a number of sizable projects including:
|
Address: |
Size: |
Number of offices: |
Sales status |
|
190 Coventry Street, South Melbourne |
520sqm |
Five |
On the market |
|
588 Swan Street, Richmond |
6,000sqm |
73 |
On the market |
|
16 Dover Street, Cremorne |
750sqm |
Six |
On the market |
|
22 Rutland Road, Box Hill |
1,211sqm |
16 |
Sold out |
|
517-535 Flinders Lane, Melbourne |
7,500sqm |
41 |
98% sold |
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2015 revenue). The company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
