This article is from the Australian Property Journal archive
A HISTORICALLY tight CBD market and recent stock withdrawals have seen office rents along Melbourne’s St Kilda Road skyrocket by 27% over the 12 months to December, as the residential downturn sees commercial space back in vogue along the leafy boulevard.
CBRE research shows prime effective rents grew to $347 per sqm, and senior research analyst, Aiden Bresolin said further growth is expected over the next few years as high CBD rents continue to push tenants into fringe locations.
St Kilda Road’s seven-year annual growth rate is 5.4%, outperforming similarly-sized markets of Macquarie Park (3.4%), Parramatta (5.2%), and Southbank (3.8%).
CBRE director Mark Wizel said the resultant strong rental growth had not been lost on landlords looking to capitalise, with properties once earmarked for residential and/or hotel uses looking increasingly likely to return to office use.
“What we saw over 2015, 2016 and into 2017 was frenetic demand for apartment space to the degree that we saw office space withdrawn from the market. We are now seeing the reverse and that is both a function of the extremely tight CBD office market and the downturn in the residential market.
“Combined with a third factor – the withdrawal of office stock – we now have some of the strongest net effective, non-CBD, rental growth in the country.”
CBRE director office services Anthony Park said the “real game changer” is the metro tunnel system with construction well underway. That will bring a new underground station to the corner of Domain Road, to be known as Anzac station.
“Occupiers are taking a long term view knowing they will, in the medium term, share the benefit of a train station servicing St Kilda Road as well as a much improved retail offering,” he said.
Major new entrants to throughout 2018 include health supplements manufacturer Evolution Health over 2,000 sqm at 476 St Kilda Road; Toyota across 1,165 sqm at 432 St Kilda Road; insurance broker Choosewell leased 1,154 sq m at 549 St Kilda Road; and clinical research organisation Nucleas Network took 934 sqm at 484 St Kilda Road.
According to Knight Frank, numerous businesses currently housed along St Kilda Road have recently tested the wider market only to renew their leases in the precinct, including KBR, Broadspectrum and Newcrest.
Only three properties sold in 2018, including 541 St Kilda Road, which sold for $64 million, 509 St Kilda Road, which Beville Group offloaded at a record price for the precinct of $163 million, and 464 St Kilda Road, for $95.38 million.
Currently, 424-426 and 420 St Kilda Road are both on the market. Illoura House, on the 4,645 sqm corner site at 424-426 St Kilda Road, has a 12,659 sqm six-level building with approval for an 18-level mixed-use tower that was subject to an in-principal deal with hotels giant Marriott.
The refurbished and 99% leased 420 St Kilda Road property is being sold on behalf of private equity firm KKR and its local partner Vantage Property Investments. comprises a 10,452 sqm office building with parking for 131 cars.
Singapore’s Chip Eng Seng sold the 11-storey, 10,452 sqm building for $68.84 million little more than 18 months ago, representing a capital gain of $23.56 million after it acquired the asset in December 2013 from Yong Quek for $45.28 million.
Recent Cushman & Wakefield research showed the St Kilda Road office precinct has seen capital values rise by between 90% and 115% over five years.
Australian Property Journal
