This article is from the Australian Property Journal archive
A CHINESE private investor will test how far office values have repriced and yields have expanded in Melbourne’s middle market, by selling a tower they purchased during the peak from Larry Kestelman, the developer famous for signing a $3 million world-first deal with Hollywood A-lister and Oscar-winning actress Charlize Theron to promote his South Yarra project.
The city fringe office building at 10 Queens Road, Melbourne with more than $3 million in rental returns has hit the market. The 10-storey building spans 8,815sqm on a substantial 2,323sqm site features a combined 60 metres of frontage to Queens Road and Queens Lane, sitting directly opposite Albert Park.
Oliver Hay, Daniel Wolman and Leon Ma from Cushman & Wakefield’s Melbco Middle Markets team have been appointed to manage the sale via an international expressions of interest campaign.
The agents were unavailable for comment.
The property returns $3,112,236 per annum, net fully leased, and offers significant opportunity for future capital value add and rental reversion. Additionally, the site offers substantial basement and under croft car parking comprising 159 spaces and boasts an energy rating of 4.0-Star NABERS Rating.
The site will benefit from the newly built ANZAC station and the in-progress Metro Tunnel project, with its location sitting within proximity to major landmarks, top private schools and iconic gardens.
The international expressions of interest campaign for 10 Queens Road is scheduled to close on 27 March 2024.
The Chinese private investor bought the asset from Kestelman in May 2018. Prior to that, the last known owner was Crystal Group, which had held the asset since the 1990s and sold it in 2013.
In 2018, prior to the covid pandemic and rise of flexible workplace, Kestelman pocketed a whopping $60 million on a yield of 5% on the deal.
But six years is a long time in property and the office market is facing challenges post covid.
Office values have tumbled worldwide as covid forced an existential crisis on the sector. Working from home became the new normal as lockdowns kept workers in their homes and CBDs empty. As workers returned to the office with three- and four-day weeks common, a number of businesses decided to use less real estate, delayed making lease commitments, or utilised hybrid working venues, driving vacancies in the traditional CBD office markets to long-term highs.
The structural changes in the market are still wringing out the value from office towers. Over the first half, office revaluations caused a $3.5 billion hit to the value of Charter Hall’s total portfolio. Dexus saw another $687 million wiped from its portfolio in the half – following a $1.184 billion devaluation in the previous half.
During 2023, Dexus sold its 44 Market Street tower in the Sydney CBD at a 17.2% discount to book value, and the 1 Margaret Street tower at a 21% discount to book value.
Colliers analysis had suggested that more than 25% could be wiped off the value of prime Sydney office tower values from the peak in June 2022 to an expected trough in September this year.
Meanwhile the Fair Work Commission is considering a decision whether the right to work from home should be enshrined into industrial awards.
