THE PROPERTY DEVELOPMENT REVIEW
Who were the most active buyer and seller groups in 2023? Was there a depth of off-shore investment and from which countries did you see most investment flow? The most active buyer groups for Melbourne suburban office in 2023 were owner occupiers. Popular suburbs for owner occupier activity were in the city fringe suburbs of Abbotsford and Richmond and the inner east belt of Kew and Hawthorn. Syndicates from the eastern seaboard are currently eyeing off opportunistic deals in Melbourne and angling for price weakness and higher yields. However, we are yet to see much office investment sale activity. We saw limited buying activity in 2023 from developers, institutions and offshore groups. The year wasn’t without its challenges; namely a volatile interest rate environment, building cost pressures, supply chain issues to name a few, but there appears to be some relief in sight. What in your outlook for 2024? Now more than ever property observers are watching the economic indicators, especially CPI and interest rate movements. The fluctuation in global economies is having a direct effect on property pricing, with so much uncertainty. Everyone is looking for a more stable and predictable environment so that vendors and buyers have some certainty about where building costs and interest rates are going, so they can plan their projects and spending accordingly. We are yet to see much receivership or forced sale activity in the Melbourne commercial property space, but 2024 could be see more properties come onto the market as a result of Banks and lenders losing patience and wanting to see an outcome. Office leasing is seeing some green shoots in hot spots like South Yarra and Cremorne where numerous significant sized office projects are likely to be constructed over the next 2-3 years. Additionally, we are seeing evidence of more
occupiers coming back to the office as opposed to working from home, or at least in a hybrid arrangement. Which part of the Melbourne suburban office market do you anticipate leading the charge in 2024? Assuming vendors and buyers can find middle ground on pricing, we expect well leased suburban office properties to be sought after by high net worth private investors, family offices and syndicates, especially in the city fringe and inner eastern suburbs. At the moment there does still seem to be an arbitrage between vendor and purchase pricing expectations in many cases. Owner occupiers will be resilient and continue to purchase office space as this buyer group often make their property decisions based more on space and locational needs for their staff rather than price and return. Cranes will become more and more prevalent in the Cremorne part of Richmond with at least 6 major projects likely to start construction in 2024 delivering over 100,000 square metres of new office space to the 3121 postcode. Strata office projects in Toorak, South Yarra, Richmond and Prahran are likely to be constructed where capital value rates are ranging between $12,000 - $18,000/sqm in certain locations. Thinking specifically about the development site space, do you see more activity opening up in 2024 given interest rates and building costs seem to have peaked and will most likely stabilise or reduce? Assuming we do see interest rates stabilise and construction costs peak or even reduce, then we could see more activity in the commercial and mixed-use development space, however the RBA’s 0.25% interest rate increase in early November was not conducive to this occurring. Until we see clear evidence over a sustained period of time that interest rates and construction costs have peaked, and then more expectations of when these vital economic and cost indicators will actually reduce, we don’t expect to see a flurry of activity in the development sites space.
November / December 2023 – 47
Powered by FlippingBook