A syndicate has snapped up aged care provider Benetas’ head office in East Hawthorn, paying $24.65 million on a 5.5 per cent yield.
The deal, struck at a value above expectations, shows the strength of Melbourne’s suburban office market where yields have already compressed 75 points in the past year.
The two-storey 4000 square metre building at 785-789 Toorak Road is 94 per cent leased to seven tenants with a slender two-year average lease term.
Colliers International agent Peter Bremner, who negotiated the deal with JLL agents Josh Tebb and Marcus Quinn, said the suburban office market is “very very strong”.
“We can’t get enough stock. Anything we get sells,” Mr Bremner said.
The buyer, a local syndicate, has plans to reposition the slightly underlet building which is close to the Monash Freeway and Tooronga Shopping Centre. Rents have been rising in the inner eastern market and incentives falling as tenants are priced out of the fringe office precincts.
Contracts were exchanged within a week of the expressions of interest campaign closing, he said.
Eight strong offers were made for the building, mostly by local buyers, Mr Tebb said.
“It’s on a 3000 square metre site so it’s gone some development potential but we didn’t see a lot of interest from offshore buyers,” he said.
“The major disappointment was that there weren’t two or three more of them to sell. The appetite for good quality sub-$30 million assets is still very strong,” he said.
In September, Peak Equities snapped up the Camberwell Junction headquarters of n Pharmaceutical Industries, paying $27.5 million for the leasehold property.
Records show financial services group, IOOF bought the East Hawthorn building in 2001 for $10.1 million. It was developed by Folkestone in 1999 and designed by architects Peddle Thorp.
IOOF senior portfolio manager Simon Gross said “After 17 years of ownership and a recent refurbishment, the timing was right to take advantage of the strong Hawthorn office market and divest while the building was close to 100 per cent leased.”
Recent research by Colliers International on the metropolitan office market shows average yields tightened 75 basis points in the inner eastern market to 5.75 per cent.
The vacancy rate of 5 per cent is forecast to shrink to 3.7 per by September next year, with no new stock coming into the market.
A-grade rents increased 4 per cent and B-grade rents by 6 per cent in the six months to September 2017 and incentives have reduced to 13 per cent.
Colliers research manager Anika Wong said no new space will be ready until 2019 when 8000 square metres of office at 135-155 Camberwell Road is completed.
“The low vacancy is a result of growing tenant appeal in the fringe and inner east markets with tenants’ focuses on attracting and retaining employees. We forecast rents to lift around 6 per cent in the next 12 months as competition continues and demand outpaces supply,” Ms Wong said.