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July 31, 2017

Australian property giant, Mirvac, has sold two of its prime office assets in as many months, further highlighting the attraction of the country’s second biggest real estate investment market.

The two deals, both 50 percent stakes of assets on the City’s renowned Collins street, underline the strong investment proposition of the Victorian Capital to both foreign and domestic capital, and the increasing popularity of partnerships.

Mirvac’s CEO & Managing Director, Susan Lloyd-Hurwitz, said the transactions were “a testament to both the strength of our integrated offering and our attractive partnership proposition”.

The first, a 50 percent interest for 664 Collins Street, was acquired by a partnership involving an investment vehicle sponsored by local group Morgan Stanley Real Estate Investing (MSREI), while the second and most recent was with an Asian investor: Suntec, a Singapore-listed REIT, entered into an agreement with Mirvac to purchase a 50 percent stake in the group’s Olderfleet development for AU$414 million, located at 477 Collins Street Melbourne.

Currently under construction, Olderfleet is slated to become the largest premium grade office building to hit the Melbourne market in over 25 years, complete with a facade dating back to the 1880s.

The investment in the development is valued at AU$138 million based on a capitalisation rate of 4.97 percent – a figure that JLL’s Rob Sewell believes shows that the proposition for buyers is strengthening.

“I think we will see more of these sub five percent transactions coming through in Sydney and Melbourne,” says Sewell who led both transactions.

The deal comes as Asian groups continue to target the country’s commercial real estate market.

“Australia is particularly attractive to Chinese investors due to its mature market, stable legal system and political environment, its proximity to China, plus its similar time zone,” explains Michael Zhang, Head of China Desk for JLL Australia.

“The level of investment returns for Australian office assets are amongst the best in the world, and will continue to outperform most Asian office markets over the next three years.”

Magnetic Melbourne

According to the latest figures from JLL, the draw to Melbourne is justified; Prime gross effective rents increased by 2.9 percent in Q2, and by 16.2 percent over the 2016/17 financial year, as a shortage of contiguous space in the CBD – with take up being supported by trends such as the coworking business model – is exerting pressure on rents.

In fact, Melbourne recorded the strongest net absorption out of all Australia’s CBD markets in the second quarter and over the 2016/17 financial year, with vacancy tightening to 7.1 percent – the lowest since the first quarter of 2012.

According to Stuart Colquhoun who heads up Leasing for JLL Victoria, there are two key factors driving demand. “Nationally, many companies are in expansion mode and are choosing Melbourne CBD as a destination, due its mix of transport, retail and commercial amenity. This is coupled with a boom of technology firms and co-working operators who have driven enquiry and activity.”

Langton McHarg, JLL’s Head of Sales and Investments in Victoria, believes there is much potential for investors to capitalise. “This upturn in Melbourne’s leasing market strengthens the city’s proposition for investors. Its growth potential will continue as older assets are refurbished and new supply comes online. All these factors contribute to Melbourne remaining an attractive destination for domestic and overseas investors. In fact, 50 percent of sales in the market were purchased by foreign investors in 2015 – 2016, well above the long term 25 percent average, and we are seeing strong levels of interest and demand continue.”

Click here to read more about Australian commercial real estate investment

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Langton McHarg

Head of Sales & Investments - Victoria, JLL Australia

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