Growthpoint Properties has bought a government-leased office building in Dandenong in Melbourne’s southeast for $165 million, reflecting a 5.3% initial income yield.

Located at 165-169 Thomas Street, the 15,071 sqm property comprised seven floors of A-grade office space, ground floor retail and basement parking for 204 vehicles. 

The property was 99.7% occupied with a weighted average lease expiry (WALE) of 9.5 years. The Victorian State Government has leased 96.8% of the property, while the outstanding space was leased to eight retail businesses. 

Built in 2011, the asset featured high ESG credentials, including a 5.5 Star NABERS Energy rating, 6 Star NABERS Water rating and 6 Star Green Star rating. 

“We are pleased to acquire this high-quality, long-WALE asset with high green credentials that is centrally located in Dandenong, the hub of Melbourne’s growing south-east region,” Growthpoint Managing Director Timothy Collyer said.  

“The acquisition further increases Growthpoint’s exposure to government covenants in strategic urban locations and is a great addition to our portfolio, supporting our strategy to maintain a portfolio of modern, high-quality resilient assets which meet our tenants’ needs now and into the future.  

“We are confident in the market’s long-term outlook with recent urban renewal investment supported by further Government investment initiatives.  

“The State Government ‘Revitalising Central Dandenong’ initiative is expected to attract over $1 billion in private sector investment.” 

Collyer said the Federal Government’s $15 billion infrastructure investment in the south-east would further improve transport connections.  

“This includes the Port of Hastings Inland Port Facilities with an associated intermodal facility and freight rail connection from Melbourne to Dandenong South (including removal of related road and level crossings to reduce congestion), and an upgrade to the Cranbourne Packenham rail line which will reduce travel times and provide a direct link to Melbourne airport through the Metro tunnel,” Collyer said.  

The deal comes after Growthpoint purchased a modern office in Hawthorn East, Melbourne for $125 million in March. 

It is the latest office transaction in Melbourne, following Frasers Logistics & Commercial Trust’s purchase of an office building in Mount Waverley for $60.25 million last week. 

Earlier this month, Garda Property Group bought an office in Hawthorn East for $20.1 million, while Harbour Group divested an office building in Burwood East for $13 million in February. 

Singapore-listed Straits Trading Company bought two office buildings in Docklands for $150 million, while Hong Kong-listed Link REIT entered into a $596 million deal with Oxford Properties to invest in an office portfolio including the 567 Collins Street building in the Melbourne CBD. 

Office market deals reached $3.4 billion across Australia during the first quarter of 2022, down 18% on the same period a year ago, but there were some encouraging signs with contracts exchanged on several significant acquisitions, according to Real Capital Analytics 

Over the 12 months to end-March 2022, office transactions reach $24.8 billion, up 63% year-on-year.