Melbourne offices to bring back the marvellous

Victoria is set to see a surge in economic activity as Covid rules are further eased and workers return to their offices.

The Victorian capital is poised for a series of big-ticket office property deals with the buying action already getting under way.

The relaxation of mask and “work from home” mandates announced by the Andrews government is expected to spur economic activity and bring back workers to the city.

After enduring some of the world’s longest lockdowns, the city is now coming back to life, and investors are looking to get set early in the ­recovery.

Just this week a deal by Singapore Straits Trading Company, aided by Artifex Property, to buy a $150m complex in the city’s Docklands district was finalised.

And there have already been some fringe office buildings traded, with Rathdrum Properties buying a St Kilda Rd block from Terraplex for $67.6m.

Challenger is also selling the Victorian County Court complex for about $388m. The 20-year old property comprises three connected buildings, including a four-storey judicial building, a 10-storey, 42,000sq m tower for 46 courts, and a three-level building with nine courts.

The freehold of the William St complex is owned by the Victorian government, with Challenger Life selling the 99-year leasehold. Industry players said the government was buying the leasehold but the parties have declined to comment ahead of the sale settling in May.

The action in the CBD is now about to switch to the big end, with some of the marquee offers of the year about to launch.

Melbourne’s Southern Cross Towers complex, which fronts both Exhibition St and Bourke St, is being put on the block by joint owners, private equity firm Blackstone and Canadian asset giant Brookfield.

Their offer, via Cushman & Wakefield and CBRE, will see the bulk of the $2bn-plus complex change hands as the owners capitalise on strong demand for prime long-leased assets underpinned by government tenants.

Blackstone bought a half stake in the Southern Cross buildings in late 2015 for $675m from funds managed by Brookfield.

The prime office asset in Melbourne’s CBD is expected to appeal due to its heavy line-up of Victorian government departments, including Justice & Community Safety, Premier and Cabinet, Jobs, Precincts and Regions, and Transport.

The landmark complex comprises Southern Cross East Tower and Southern Cross West Tower.

Blackstone held the asset as part of its core-plus strategy and with Brookfield it repositioned the East Tower, winning a seven-year extension over 78,000sq m of space, transforming it into a premium core asset.

That block is to be sold entirely with Blackstone to exit the smaller West Tower, while Brookfield will retain a half stake in that building. The strategy will give potential buyers the benefit of Brookfield’s leasing muscle as it would stay on as a co-owner for that tower.

The 37-storey East Tower spans 79,731sq m and the 21-storey West Tower spans 46,369sq m. The latter building last year lost tenant Australia Post to a new block being developed by Charter Hall in inner-city Richmond.

But the lease runs until November 2024 and as the complex sits at the highly sought after eastern end of the CBD near parliament, it is expected to be a contender for a new 20,000sq m- 45,000sq m leasing requirement from the Victorian government. Finance and insurance groups and professional services firms are also hunting for space.

The sale is a bet on the once deserted Melbourne CBD springing back to life, with the investors looking to ride a tide of workers returning to offices.

Melbourne’s office vacancy rate rose to 11.9 per cent at the end of last year, but this is expected to be a peak as white-collar employment surges, borders reopen and strong business sentiment translates into action.

Global players are making the early running on buying prime assets as they believe that Australian cities will follow the trail set in markets already through the worst of the coronavirus crisis.

Sydney has already seen record levels of commercial office sales. German financial services firm Allianz last month tied up its $630m purchase of a half stake in the marquee Commonwealth Bank Place in Sydney’s Darling Harbour.

Earlier this month, Hong Kong company Link REIT also unveiled a $2.3bn deal to take an interest in a collection of the nation’s top buildings being sold by Canada’s Oxford Properties Group.

Global investors are targeting prime buildings that can attract and keep the best tenants, as corporations look to give their workers a reason to come back to offices.

Rising confidence is also prompting the offer of some key Melbourne development sites. Prime among them is a $150m-plus development site that is billed as the next landmark office tower.

Anton Real Estate Partners is selling the property at 85 Spring St, via CBRE and Knight Frank, where a ­vacant 16-level office block stands.

Anton paid about $112m for the site in 2019, picking it up from Jeff Xu’s Golden Age, which had planned ­luxury apartments and a hotel. Now the site has approval for a Bates Smart-designed 37-level prime grade office tower, which could span 29,630sq m.

With the Victorian economy showing signs of recovery, office demand is rising fast, consigning the era of Melbourne’s silent office towers to its pandemic past.