Issue 27 | The Property Development Review

Market Overview - VIC

VIC Market Overview from Rachael Clohesy Colliers

Q. Howwould you evaluate the impact of the past eighteen months in your local market? A. Despite the disruption of multiple lockdowns and restrictions over the past 18months, theMelbourneMetropolitan office market has shown incredible resilience with several significant transactions taking place. Investors have focused their attention towards securely leased office investments in theMetropolitan market, amarket which is anticipated to benefit from the Covid-19 pandemic froma tenant demand perspective. Examples of this trend include the transactions of two long-WALE government leased assets in 2021 which were acquired by Centuria and Charter Hall for $224mand $230m respectively . Q. What are your expectations for the commercial property market over the next twelve months? A. There has been significant momentumgained over the last 12months in the commercial property market. Investor appetite remains strong andwith the easing of restrictions in Sydney and Melbourne as we reach vaccination targets, I expect to see an increase in deal activity over the remainder of 2021 and into the new year. Q. Talk us through the most significant deals you have transacted thus far in 2021. A. Themost significant deal that I have been involved in so far in 2021 has been the sale of 11 Wilson Street, South Yarra. The asset sold on a short 30-day settlement to German fundmanager Real I.S. Group for a record price of $73.5million, reflecting an initial passing yield of 4.68%and capital value rate of $11,504/m². This Expressions of Interest campaign was incredibly competitive, with eight offers submitted from local, national and offshore groups, representing the significant demand for quality Melbourne city fringe core office investments.

Q. What are the key market trends occurring throughout 2021 in your region? A. The key market trends occurring throughout 2021 have been record low interest rates, lack of supply, significant amount of active undeployed capital and unprecedented investor confidence. Q. What have been the fundamental drivers of demand amongst buyers? A. Location, quality, and leasing activity have been fundamental drivers of demand amongst buyers. TheMelbourne city fringe officemarket has experienced exceptional leasing activity over the past 18months, withmajor occupiers including Bunnings, NDIS, Australia Post andMonash IVF committing to newbuildings within this market. As a result, we have witnessedmost of the sale activity over the past 18months to have occurredwithin the city fringe. Q. Reflecting on recent transactions, what has been the profile of buyers and has this shifted from previous years? A. Private investors have always been a strong contender within theMelbourneMetropolitan officemarket, being the dominant buyer type in 2019 prior to the Covid-19 pandemic. Private investors are still a key buyer profile within this market; however, we have witnessed an increase in institutional and offshore investor activity over the past 18months, with buyers such as Centuria, Charter Hall and Real I.S. acquiring significant office investments in the MelbourneMetropolitanmarket. Q. What types of assets are most in-demand given the current environment? A. Securely leased assets with a long-WALE are a high priority for buyers given the current environment. Industrial and life sciences are currently themost in-demand sectors, due to their necessity throughout the Covid-19 pandemic. ‘Covid-proof’ office occupiers such as Government, health, and technology related tenants are positively viewed by buyers in the current environment.

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