Market Insights

21.05.2020

Collective Capital snaps up $20m Frankston office

– Defensive tenancy profile behind off-market purchase –

National property investment group, Collective Capital, has snapped up one of the most significant office buildings in Melbourne’s south-eastern bayside with the off-market purchase of a Frankston property valued at circa $20 million.

In a deal brokered by CBRE Director Investments, Mark Wizel, with Directors Melbourne Middle Markets, Josh Rutman and Scott Orchard, the largely government tenanted building was sold 78 per cent leased with a net passing income of nearly $1.24 million. The yield was not disclosed and it is understood that several leases were nearing expiry.

The 454-472 Nepean Highway property comprises a five level, 6254 square metre (NLA) building with ground floor retail on a 2501 square metre site with three street frontages and parking for 142 cars. It sits on the corner of Wells Street, adjacent to the headquarters for South East Water, which was completed in 2015.

Mr Wizel said the sale result reflected the property’s quintessentially defensive tenancy profile, a characteristic which has become highly sought after as forecasted challenges around the office tenant market continue to gain momentum.

“This was an astute purchase which delivered a very satisfying level of income security at a time when income security is at a premium across all types of investment classes.

“Interest in this and other so-called defensive income properties, especially non-discretionary retail, has risen markedly in recent times and will continue to escalate whilst uncertainty remains,’’ Mr Wizel said.

Mr Rutman said investors were also responding to the growing trend of a decentralised workforce where office workers preferred to work either at or closer to home to reduce travel times without compromising productivity.

“Investors are seeking out opportunities where they can reposition buildings to cater for these changing worker needs in strategic locations which will be able to service a specific tenant catchment or industry

“This building, and others like it, are well placed to come through the current crisis in good shape,’’ Mr Rutman said.

He said while there was little doubt that risk was being assessed more prudently at present, Melbourne’s celebrated white collar tenancy diversity was a positive in driving medium to longer term confidence in the market.

Collective Capital Director, Nicholas Thompson who founded the organization together with Dale O’Dwyer, said he was delighted with the transaction and confident about the strong returns that it would provide to investors.

“The asset was strategically targeted due to its very strong government and government-funded tenancy profile, which, during these uncertain times, will provide our investors with a high level of income security,’’ Mr Thompson said.

CBRE’s Head of Suburban Office Leasing, Gianni Macdonald, said whilst lease transactions had slowed, Melbourne’s metropolitan office market had seen a significant increase in enquiry from government tenants looking for fitted tenancies close to train stations.

“Buildings that are easily accessible by public transport and have tenancies ready to go are seen as a `no-risk’ solution for occupiers looking for new office space,’’ Mr Macdonald said.

He said the landmark building’s highway location within walking distance of Frankston Railway Station and Bayside Shopping Centre had been a major factor in attracting tenants including NDIA, St Lawrence and Wise Employment.

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