A value-add office investment in Melbourne

JLL has been appointed to market a partially vacant office building at 432 St Kilda Road that offers strong rental upside, benefitting from the recent major capital expenditure and the opening of the new metro train line.

JLL’s Paul Kempton, Josh Rutman, Piper Dedrick, and Tim Carr are exclusively marketing the property on behalf of global asset manager Abrdn.

The property occupies a site of 2,327 sqm and offers a net lettable area of 9,128 sqm and 136 car parking spaces within the new ANZAC underground train station precinct that is planned to open in 2025.

JLL Head of Office Investments – Victoria, Mr Kempton said the Anzac train station precinct is expected to revitalise all surrounding assets, particularly office investments, by providing greater connectivity across Melbourne.

The new station will provide access to Melbourne’s traditional inner suburbs as well as Melbourne’s southern, northern and western regions via the Metro Tunnel project, reinforcing this well-established inner-city office precinct as a convenient destination.

Analysis by JLL Capital Markets found that train station precincts vacancy rates are on average 3.9% lower than non-train station precincts over a 10-year period for the Melbourne CBD. In addition, the current vacancy rate of train station precincts of 9.3%, is well below the market vacancy of 19.6%.

“Upon completion of the Anzac Station, the vacancy rate in the Anzac precinct is expected to substantially improve in line with this trend and present as a compelling office investment destination,” Mr Kempton said.

He said the purchaser could capitalise on the space available in the building and harness the expected future demand, with the potential for a fully leased income of around $4.4 million p.a.

“432 St Kilda Road also offers an immediate opportunity for positive rental reversion. Benchmarking recent leasing deals in the area demonstrates the possibility to increase current rents by an average of 15% presenting a strong immediate uplift,” said JLL Head of Capital Markets – Victoria, Mr Rutman.

“It offers efficient floorplates able to be divided for a range of smaller tenant requirements, along with interconnected stairs on Levels 11 and 12 capable of attracting larger, corporate tenants.”

“With current vacancies and recent capital works, the property is positioned to leverage the opportunities in one of Melbourne’s more established, inner fringe office precincts,” said JLL Associate Director Institutional Investments – Victoria, Ms Dedrick.

The location is within walking distance to one of Melbourne’s leading dining precincts in Domain Road, along with ample shopping in South Yarra on Toorak Rd. The property is also near some of Melbourne’s leading tenant amenity including Albert Park, the National Gallery of Victoria and the Shrine of Remembrance.

Mr Kempton said the property's considerable land value also created the potential for alternative uses such as tapping into the area's strong residential market where a number of office properties in the vicinity have recently been converted.

“Melbourne's accelerated economic growth, burgeoning population, and climbing demand for residential over the coming decade make a strong argument for residential development,” he said.

432 St Kilda Road will be sold via an International Expressions of Interest campaign closing 2 pm (AEST) on Thursday, 3 October 2024.