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News release

Melbourne

Melbourne CBD commercial office transaction volumes smashing records

Q3 transactional data at highest total recorded in 25 years


Melbourne CBD commercial office transaction volumes (above $5 million) could hit $2.25 billion by year end given to date they have already reached $1.8 billion,  the highest total recorded in 25 years.

While the physical market conditions remain challenging, investor demand for core product remains strong.

2013 has seen a number of significant deals transacting at above $100 million. Some of these deals have been record breaking, including the largest Melbourne office investment sale in 20 years - 567 Collins Street ($462 million); and the largest Melbourne CBD mixed use asset transaction to be offered to the market in 2013 - 206 Bourke Street ($105 million), both of which were transacted by Jones Lang LaSalle.

Other major CBD deals over $100 million include:
• 8 Exhibition Street – $320 million (two purchasers transacting at $160 million each)
• Building 3, 735 Collins Street – $279 million
• 90 Collins Street – $170 million
• 313 Spencer Street – $113 million

Jones Lang LaSalle Head of Capital Markets, Victoria Robert Anderson said, “The high levels of transaction volumes illustrate the strong demand for core real estate in Melbourne.”

“The majority of deals have been negotiated at an ‘off-market level’ this year, with significant demand from both the domestic and offshore markets. Two prime examples of off-market deals are 567 Collins Street and 8 Exhibition Street,” Mr Anderson added.

Whilst foreign investors appear to be dominating deals, Jones Lang LaSalle Research shows domestic buyers have accounted for 52% of year to date volumes, followed by Singapore (27%), China (6%) and the USA (6%).

Mr Anderson said, “Domestic players have been involved in the larger CBD deals (over $100 million), accounting for 44% of the total, whereas the offshore volume has typically been in the sub $100 million bracket which amounts to 18% of the total.”

“In an example of this both 460 Bourke and 575 Bourke were deals we transacted with offshore parties for $25 million and $70 million respectively,” Mr Anderson added.

With an increase in transaction volumes in 2013, Jones Lang LaSalle Research has tightened prime investment yields.

Jones Lang LaSalle’s Research Manager for Victoria, Kimberley Paterson said, “Prime yields have tightened by 25 basis points at the upper end of the range to 6.25% in 2013 from 12 months earlier.”

Given the weight of capital and a lack of openly marketed stock, Jones Lang LaSalle anticipates further yield compression at the tighter end of the range over the final quarter of 2013.

“While yield compression over the first half of the year was captured by domestic capital,  the next wave of compression of core cap rates is being driven by offshore capital, and we could see prime yields tighten to 6.00% by year end,” Ms Paterson said

A number of offshore groups have increased their exposure to the Melbourne CBD market during 2013.

“CIMB Trust Capital acquired the ATO Building at 735 Collins Street for AUD 279million. The sale price reflected an initial yield of 6.25% and created a new benchmark for core product in the Melbourne CBD, “ Mr Anderson said.

Mr Anderson said, “The final quarter looks solid with transactions still to be completed and offshore deals in the pipeline. Private investors, private corporates and offshore investors are all in the market for secure investments and development opportunities with substantial residential developer interest coming through from Singapore, Malaysia and China.”

“Volumes could easily hit $2.25 billion given major transactions such as 367 Collins Street and 485 LaTrobe Street have a combined potential to wrap up at circa $400 million,” Mr Anderson added.