Victorian office property deals hit a record $2.6 billion in 2019, the highest total ever recorded for a single year’s start, according to CBRE’s latest research. Nationally, $8.5 billion in office properties valued over $5 million changed hands in the first half of the year, the report states, marking a slight uptick in transaction volumes compared to the same period in 2018.
The average yield for prime office stock in Victoria dropped to 5.2%, a sign of tightening returns as investors respond to economic conditions. CBRE’s head of Capital Markets research, Ben Martin-Henry, attributed the shift to the Reserve Bank of Australia’s two rate cuts—each of 25 basis points—since the federal election. These cuts pushed borrowing costs below 3%, encouraging more investment in commercial real estate, he said. Martin-Henry noted that the low-interest environment is expected to further compress property yields as lenders provide financing at rates below 3%.
Major transactions included Charter Hall’s $192 million purchase of 737 Bourke Street from KWAP and AEW’s $200 million acquisition of 31 Queen Street in Melbourne’s central business district. The sale of 31 Queen Street alone reached $200 million, while Dexus confirmed plans to spend nearly $1.5 billion on a portfolio centered around 80 Collins Street, one of Melbourne’s most prominent office towers.
While Melbourne’s CBD saw strong activity, demand remains high for larger deals. CBRE’s senior director for Capital Markets, Neva Courts, noted that domestic and offshore investors are still looking to deploy capital, but buyers must price in rising rents to secure acquisitions. Smaller transactions under $100 million have slowed, with only two listings in the $50-$100 million range this year compared to six in the first half of 2018. This scarcity has led to fierce competition, driving up values for available properties. CBRE Middle Markets Director Josh Rutman added that the shortage of opportunities is pushing private investors and smaller unlisted funds to bid aggressively, resulting in significant capital value uplifts for owners.
Outside the CBD, sales activity dipped in the first half of 2019 but picked up after the federal election, aligning with broader market stabilization. Private and high-net-worth investors—many from Malaysia, Singapore, Hong Kong, Macau, and mainland China—remained active, though their focus has shifted toward suburban markets like St Kilda Road, Richmond, Hawthorn, and South Melbourne. These areas now offer stronger tenant demand, effective rental growth, and solid absorption rates, reducing the risk premium compared to the CBD. The shift reflects a broader trend of investors seeking diversified exposure beyond traditional CBD hubs.
Investors appear increasingly comfortable with non-CBD assets, according to Josh Rutman, CBRE’s Middle Markets Director. The narrowing gap between CBD and suburban opportunities suggests a broader appetite for office properties beyond the city center, though competition for prime locations remains intense. Rutman highlighted that the metropolitan office market’s risk premium relative to Melbourne’s CBD has diminished, as tenant demand and rental growth in key suburban corridors continue to outperform expectations.
