Suburbs set Melbourne office market alight

Sales of suburban offices are running at fever pitch, with the value of deals outside Melbourne outstripping CBD transactions by $30 million so far this year, research shows.

Across Melbourne, there were $3.5 billion worth of office deals in the first three quarters of 2015, and half of those sales took place in the suburbs.

City office sales so far this year have totalled $1.66 billion, compared with $1.69 billion of suburban sales, according to the research by agents CBRE.

The tally for suburban office sales in the nine months to September is already up almost threefold on the figure for the whole of last year, according to CBRE senior research Bradley Speers.

Over the past decade, total suburban deals have only breached the $500 million mark three times. The yearly average across the previous nine years is $360 million, the CBRE data shows.

Tenants previously located in the fringe have been attracted by affordable lease terms in central locations with better access to amenities

The splurge is being driven by the entry of more smaller private investors and foreign buyers looking to convert office sites to residential.

More outer CBD tenants are also moving into town, contributing to the city’s highest level of net absorption in at least five years.

CBRE says Melbourne is also outpacing other capital cities in the CBD rental market.

“Tenant migration from the suburban markets and growth in white-collar employment has boosted net absorption to 98,828sqm over the year ending June 2015,” the report says.

“Tenants previously located in the fringe have been attracted by affordable lease terms in central locations with better access to amenities.”

The bumper suburban crop was made up of many sales rather than one or two big deals, CBRE says.

The ATO will soon call this Box Hill building home

The biggest transaction was the $156 million paid by FG Asset Management to Cromwell for 913 Whitehorse Rd, Box Hill, which will be the new home of the Australian Taxation Office.

“There were no large portfolio sales elevating the suburban sales this year,” Speers says.

“The simple fact is that there has been a high volume of sales in the suburbs, and we’ve seen private investors (who tend to invest in the suburbs) become more active.”

The report found prime face rents and incentives remained stable in the suburban market during the third quarter with face rents averaging $298 a square metre and incentives at 22.6%.

“Secondary face rents and incentives were similarly steady at $250 per square metre and incentives at 23.7%,” it says.

There were no large portfolio sales elevating the suburban sales this year

By comparison, CBD prime face rents increased slightly to $494 per square metre and secondary rents were stable at $329, with incentives at 33% and 32% respectively.

Tighter vacancies at about 8% are likely to widen in the next couple of years as confirmed pipelines of new office space are built in and out of the city.

“After only a modest increase in the supply of suburban office stock between 2010 and 2014, this year will have seen 100,000sqm of new stock entering the market, with an additional 27,000sqm under construction and expected to be complete over 2016 and 2017,” the report says.

In the CBD, Walker Corporation’s 727 Collins Street is next year expected to spill 70,000sqm into the office market, followed by an extra 45,000sqm from QIC’s 80 Collins Street in 2017.

This article originally appeared in the Herald Sun.