Investors clamour for slice of strata market

Melbourne office building ‘Causeway House’ has sold for $2.65 million.

Melbourne’s strata office market has never been hotter, agents say, as investors scour the city for commercial property’s next gold mine.

Consistently low yields have been the hallmark of an asset class that some agents are describing as approaching “investment grade”, with recent deals setting new benchmarks for popular CBD buildings.

Chris Ling, Colliers International Executive – Melbourne City Sales, says record low interest rates and a low Australian dollar have powered significant demand for strata floors during the first quarter of 2016.

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“Our Melbourne City Sales team is currently seeing an unprecedented surge in demand for CBD strata office properties in the CBD,” Ling says.

“Given given the current timing in the calendar year, business owners and operators are looking to secure new office space to set themselves up for the rest of the year.”

Level 8 at 21 Victoria St sold for $1.75 million to a private investor.

Level 8 at 21 Victoria St sold for $1.75 million to a private investor.

“CBD vendors, meanwhile, are piggybacking off the momentum seen throughout 2015 in order to capitalise on the current environment.”

Among the recent deals, Colliers sold an entire 320sqm floor at Level 8, 21 Victoria St in Melbourne to a private investor for $1.75 million on a yield of just 5.62%.

The majority of interest for the strata market is currently coming from investors

Meanwhile, a locally-based Chinese investor paid $2.65 million for a whole floor strata space owned by former St Kilda Football Club doctor Rohan White.

The 370sqm office at ‘Causeway House’, Level 3, 306 Little Collins St, was sold with a four-year lease to New Zealand public relations and marketing company SenateSHJ, and returns $146,000 per annum. The sale reflected a yield of 5.5%.

CBRE recently sold a whole floor at 'Causeway House' on Little Collins St.

CBRE recently sold a whole floor at ‘Causeway House’ on Little Collins St.

CBRE’s Tim Last, Nick Lower and Tom Tuxworth negotiated the sale, with Last saying demand for leased CBD strata assets has rarely been higher.

“The heightened strata demand is being underpinned by the compressing yields of retail assets in the CBD, which is prompting owner occupiers, residential buyers and investors to target this asset class,” Last says.

“The majority of interest for the strata market is currently coming from investors, who have recognised the potential to on-sell strata suites on a higher rate per square metre once tenancy agreements have expired and they are able to be offered to the market with vacant possession.”