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Market Insights

17.01.2019

Suburban office sales up 34% on 2017

Melbourne’s suburban office market is back in favour in no uncertain terms with local and offshore investors producing a turnaround in sales of nearly 34 per cent over the previous 12 months according to CBRE research.

Data from Research Analyst, Verity Jenkins, has revealed the number of properties sold in 2018 rose 52 per cent over 2017 while $ sales volumes lifted from $624 million to $836 million in the year to date.

State Director Melbourne City Sales & Middle Markets, Josh Rutman, said the suburban market had been the real surprise packet of 2018.

“Suburban office had a relatively quiet year in 2017 with investors’ attention focused more on CBD assets, as well as retail and industrial properties, but this year their attention has returned to the suburbs.

“A key part of the resurgence has been the lack of fringe market supply but also important has been the presence of international investors looking to diversify their holdings into the Melbourne office market and that has been no better exemplified by the $28.3 million purchase of a Ringwood office building by a Macau-based investor,’’ Mr Rutman said.

He said the fact that the sale was a pre-purchase in an outer suburb underlined the strength of an upwardly trending market.

According to CBRE’s National Director Investments, Mark Wizel, Melbourne’s rapid population growth has been the key driver of demand for office space across all office markets.

“As we know Melbourne is a rapidly growing city and the number of new apartments built across Melbourne in recent years stands testament to that.

“What this has meant for office markets in general has been a concomitant growth in demand for office space. That demand has seen vacancy in the CBD fall to a decade low of 3.6 per cent forcing tenants to looking elsewhere and the fringe and suburban markets have been the winners.

“We are now seeing vacancy fall across the suburban markets and investors have been quick to realise an opportunity,’’ Mr Wizel said.

He said more attractive yields and potential for both rental upside and capital growth, as well as longer term development prospects, were enticing more and more investors into suburban markets.

“Over the last couple of years we have seen massive growth in the fringe markets, in particular around Richmond and Cremorne, that has seen developers abandon plans for apartment projects for office builds.

“As vacancy has tightened and rents have risen in those fringe areas we are now seeing tenant demand shift to well-resourced suburban centres offering parking, a high level of local amenity, less traffic congestion, infrastructure improvements, and of course cheaper rents,’’ Mr Wizel said.

He said there was no reason to believe sales would not top $1 billion in 2019.

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