More investors like the look of suburban offices

17th June, 2017

Published: The Age, Simon Johanson

Suburban offices have become prime investment targets as falling vacancies and rising rents attract more investors to the sector.

Melbourne private investor South Haven Group this week added an $8.6 million East Hawthorn office to its portfolio and an Asian-based property group swooped on a two storey office block on Friday in the same suburb, paying $8.35 million at auction.

Investors are chasing a rise in demand from tenants searching for space outside the CBD in the suburbs where there is an under supply of offices .

The property at 425-427 Riversdale Road, about 250 metres from Camberwell Junction, was fully leased to SEDA Group for five years on net passing rent of $440,280. It sold on a yield of 5.1 per cent, a result ‘‘right up there for Hawthorn East’’, said selling agent David Minton from Colliers International . who sold the property with colleagues Andrew Ryan and Peter Bremner.

The building had changed hands in 2011 for $4.65 million.

‘‘Nothing’s changed in the building. They held it for that period of time,’’ Mr Minton said

The buyer, one of two offshore connected parties, viewed it as a land banking opportunity.

‘‘The market is starved of these sort of opportunities. Investors feel comfortable with the inner east market because of reduction in available space and rental growth,’’ he said.

South Haven scooped up 2 Hall Street, a 1980’s office with 1500 square metres of lettable space and a 600-square-metre warehouse , after an expression of interest campaign by Colliers International .

The group aims to refurbish the office building and convert the warehouse into more office space to take advantage of tight vacancy rates and record city-fringe effective rental growth of 22 per cent over the year to March.

‘‘Work has already commenced on our plans to reposition the property as a provider of high-end boutique office accommodation to the inner suburban market in 2018,’’ South Haven chief executive Ian Pratt said.

The relentless focus on apartment construction by developers over the past decade had ‘‘ chewed up’ ’ suburban sites that might previously have been used for offices , Mr Pratt said.

‘‘Suburban offices have been squeezed in the middle and businesses are struggling to find space now,’’ he said.

It’s a view supported by city fringe office vacancy rates which have fallen from 4.96 per cent in September last year to 3.47 per cent this March, according to the latest research from Colliers.

‘‘This is the lowest vacancy rate that Colliers International has ever recorded for the city fringe market, and is the outcome of strong demand and very low levels of supply ,’’ research director Anneke Thompson said.

Mr Minton and Mr Ryan handled the sale of 2 Hall Street.

Mr Minton said the property had appreciated by 20 per cent year-on-year since the previous owner bought it for $2,415,000 in 2004.

‘‘ Over the last six months there has been in excess of $50 million worth of office transactions in the immediate area,’’ he said.

Hardware retailer Bunnings’ head office in Cato Street sold for $25 million, while another office at 391-393 Tooronga Road went for $13.5 million and 401 Tooronga Road sold for $5.25 million.