After enduring 20-year-high vacancy rates and falling values, there’s renewed life in Melbourne’s CBD office market, following the record sale of 333 Queen, at top-of-price expectations.
Despite being only 85% occupied and unrefurbished, the seven-storey office tower at 333 Queen St, still became the biggest office sale so far in Melbourne’s CBD this year when it was offloaded by local investors Michael Coppel and George Blau to a local landbanker for $35 million (on a passing 4.6% yield).
As the only Melbourne CBD transaction with a land area greater than 1,000sqm this year, the property’s public sale campaign attracted over 200 buyer enquiries, 36 private inspections and attracted 8 formal offers from (mainland) China, Singapore, Hong Kong, Malaysia and Australia.
It’s understood the local landbanker was attracted to the high-profile location of the asset, situated on the corner of Queen and La Trobe Streets, with the (9) tenants including Bayside English College, numerous Melbourne law firms and the Victorian Law Reform Commission.
Melbourne CBD Selling agents, JLL’s Nick Peden, Josh Rutman, Tim Carr and Mingxuan Li exclusively handled the International Expressions of Interest campaign on behalf of the owners (after 23 years of ownership).
The unconditional nature of the offers and the desire to move quickly are a stark contrast to last year or even early in 2023, where buyer interest was more subdued.
Buyers see value
JLL’s Nick Peden believes significant buyer demand for 333 Queen – a partially vacant B-grade building – underpins the strength of the Melbourne CBD office market, especially in light of its relatively short WALE.
Despite the Melbourne CBD doing it tough this year, Peden is witnessing particularly strong interest given the scarcity of opportunity and the obvious long-term growth potential.
With international students and CBD pedestrian traffic back to pre-pandemic levels plus an ever-growing population, Peden believes Melbourne has a genuinely positive story to tell with buyers now factoring in strong long-term growth for the city.
Office is a strategic countercyclical play
While transaction volumes in the Melbourne CBD are lower than the long-term average, Peden believes this deal – which saw over 75% of bids originating from Asian Capital – demonstrates the value buyers are seeing in well located assets even if they require substantial upgrades.
“In assessing the opportunity, buyers accounted for significant upgrade works to bring the building up to standard and ensure its appeal to current tenant expectations,” said Peden director of JLL Capital Markets.
What was evident to JLL’s Josh Rutman following a recent trip to Singapore and Hong Kong, was that investors see office as a strategic countercyclical play, particularly for assets with sound fundamentals and large underlying land components.
“The unconditional nature of the offers and the desire to move quickly are a stark contrast to last year or even early in 2023, where buyer interest was more subdued,” said Rutman JLL’s head of capital markets for Victoria.
“We are in discussions with a number of long-term holders of office assets who are assessing the best avenue for maintaining the value of their properties given the mounting challenges with higher vacancy and increasing holding costs such as Land Tax.”
To put the paucity of office deals in context, 2022’s largest office transaction in Melbourne was Charter Hall’s $2.1 billion deal on the two-tower Southern Cross complex.
