Melbourne offices find buyers as capital returns after reset

The market has been hit by higher taxes, foreign investors showing reluctance to invest in Victoria and concerns about high vacancy levels.

Melbourne’s beaten down office market has seen a mid year pick-up in transactions with a series of vendors selling properties after extended negotiations have seen them take up discounted bids.

The market has been hit by higher taxes, foreign investors showing reluctance to invest in Victoria and concerns about high vacancy levels – but deals are still being done.

Big sales under way or finalised include Barristers’ Chambers Limited buying 200 Queen St from Charter Hall’s Direct Office Fund and Hong Kong-based PAG finalising its $340m purchase of 367 Collins St from Mirvac.

While the details are yet to be confirmed, industry players said the Queen St building would change hands for about $175m and show a core capitalisation rate of about 7 per cent. The deal was brokered by real estate agencies CBRE and Cushman & Wakefield, and Colliers provided valuation advice.

Fund manager Bayley Stuart has settled a deal to buy 628 Bourke St from Swiss institution AFIAA.

Barristers’ Chambers Limited has anchored the A-grade block on the corner of Queen and Little Bourke streets tower for more than 20 years. The 19,736sq m block comprises 25 levels of office space, foyer, ground level retail premises, and nine levels of parking and sits near the city’s legal and financial precincts.

In a statement, the president of the Victorian Bar, Georgina Schoff KC, said the imminent sale of 200 Queen St “provided a truly generational opportunity to further strengthen the BCL model, with the benefits flowing to all members”.

“As an owner occupier BCL can more effectively insulate its members from increased costs and over the next 20 years will achieve significant savings given the cost of renting is significantly higher than the cost of owning the building,” she said.

“This is a momentous decision and one that we consider will ensure the sustainability of the BCL model that is unique to Victoria and allows Victorian barristers to rent chambers on month-to-month tenancies without the financial burdens and commitments faced by those in other States and Territories and internationally,” Ms Schoff added.

The unit price for the Charter Hall-run fund has been placed on hold to reflect the sale of the 34-level tower.

Asian private equity and real ­estate company PAG also put its stamp on local office markets with the purchase of 37 Collins St for about $340m. The tower is in the centre of the Melbourne CBD and had been refurbished. The sale was in line with its latest book value but at close to a 20 per cent discount from its peak value of $428m at the end of 2021. CBRE and Cushman & Wakefield also handled that sale.

The activity is a sign that after a tough period in which confidence was slugged by new taxes, Melbourne could be poised for a more favourable investment cycle, backed by elevated demand and constrained supply environment that will strengthen office fundamentals in the years ahead.

A recent CBRE report highlighted that migration and occupier expansionary activity were now primed to elevate Melbourne’s space demand levels. Migration has hit historic highs, and this trend is forecast to continue, with elevated levels expected for the rest of the decade.

CBRE senior research analyst Cameron Douglas-Perrine expects Melbourne’s relative affordability and liveability to drive growth from net overseas and interstate migration into Victoria, supporting Melbourne’s office fundamentals.

“Large occupier activity across Melbourne’s CBD has been mostly contractionary post-pandemic. We expect a reversion of this trend,” Mr Douglas-Perrine said. “We believe tenant right-sizing is beginning to stabilise across Melbourne’s CBD,”

Other deals also show that activity is up, although discounts can be deep.

Last month, fund manager Bayley Stuart settled its deal to buy 628 Bourke St from Swiss institution AFIAA for about $115.8m. That was one of the city’s first major sales this year and was brokered via Knight Frank. AFIAA had picked up the ­offices for $181m about seven years ago and then poured $35m into refurbishments.

More action is to come as a Chinese investor that bought a B-grade office at 440 Elizabeth St for about $75m in 2016 is looking to sell the block for about $80m. The 13,437sq m block is one of the last retail core landholdings at the northern end of Elizabeth St and is surrounded by apartment towers.

Daniel Wolman, Oliver Hay and Leon Ma of Cushman & Wakefield have the listing.