Demand for Melbourne metro strata office soars

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Demand for Melbourne metro strata office soars

Owner-occupiers driving significant spike in strata sales amidst changing market conditions

 Melbourne Metropolitan strata office experts have seen a significant shift in demand in metropolitan Melbourne as changing market conditions put strata office property in the spotlight.

This strong demand for strata office assets has resulted in a significant 14% increase in capital rates for strata office in the city-fringe in 2019. This is following years of price stagnation with strata office and retail properties being notoriously viewed as the ‘unloved cousin’ of freehold assets.

Colliers International estimates around $49.875 million of strata office stock has been sold in the city fringe market to date this year. This means the strata market is on track to eclipse the $50.16million of strata office transacted last year.

The recent off-market transaction of Level 1, 68 Oxford Street, Collingwood further confirms and provides tangible context. The property sold for $3,550,000 to an owner occupier, representing an increase in capital value well in excess of 65% since being purchased less than 4 years ago.

What is the catalyst behind all of this demand?

The RBA cash rate, now sitting at a historically low level of 1.00 percent has encouraged and allowed groups to enter the market who previously may have not had the ability to purchase their own asset. This favourable purchase environment has resulted in owner occupiers representing the lion’s share of Colliers International’s strata office purchasers YTD.

This, coupled with low vacancy rates in the city-fringe as well as a 23% increase in net effective rentals in the preceding 24 months has created a “perfect storm” and in turn put significant upward pressure on strata office rates in the city-fringe/metropolitan market.

Colliers International is currently working with more than 30,000sqm of active demand for similar office opportunities.

The developers seem to have tacked on to this demand with a number of groups altering their residential permits to commercial developments with the intent of absorbing some of the surplus demand for commercial stock.

We expect this demand shortfall to continue well into 2021/2022 as developers begin to break ground on a number of future commercial strata developments and a number of other future projects await planning approval.

What does the future look like for strata?

We anticipate demand in strata office assets to continue to increase as owner occupiers seek purchase opportunities in the undersupplied strata market. Overall, strong fundamentals indicate that the commercial office asset class is well positioned to outperform a number of other asset classes in 2020.

Insight Author

Raphael Favas
Executive
Melb East
M: +61 435 916 380