Records broken despite falling confidence in Melbourne's sales market

The Savills Blog

VIC Commercial Sales: Records broken despite falling confidence

Income-producing assets have fared exceptionally well in Melbourne’s commercial property market throughout 2018, despite falling house prices, rising construction costs and the battle of securing finance.  

Savills Australia’s Victorian business has enjoyed one of its strongest years on record with a multitude of major transactions across the market, including 26-32 King Street, Melbourne, transacting for $11.98 million; 115 Batman Street, West Melbourne, transacting for $22.1 million; a Doreen childcare and retail centre transacting for $15 million; and a Hawthorn showroom transacting for $25 million after selling for $17 million less than two years earlier.  

A former apple orchard in Wantirna South also hit the headlines when Savills sold it for almost $100 million after it was rezoned for residential use.

Downward shift has not affected all sectors

There has been an obvious downward shift in some sectors of the development market, with several factors affecting confidence and impacting values – but certainly not all sectors of the commercial market.

Contrary to media coverage, much of the commercial market is experiencing continued strong conditions and growth, with values sustaining record highs.

CBD retail and office properties are the most keenly sought of all asset classes, with the Melbourne CBD residential, tourist and student population explosion driving retail rental growth, coupled with a co-working phenomenon soaking up available office space at elevated rents throughout the city.

Large format retail assets and shopping centres were also trading strongly, off the back of Victoria’s population growth and sound economic conditions.  

Victoria’s bid spending government was recently endorsed at the state election, paving the way for continued investment in major infrastructure projects, which should underpin the state’s economy for years to come.

We are experiencing continued strong demand within the investment sector with income-producing assets in good locations transacting exceptionally well, and often for prices well up on 2017 levels.

Strength of Asian investment

Our team has not experienced any slow-down in investment from Asia, with 48 percent of all sales in 2018 transacted to Asian investors or developers. 

With our market-leading Asian Services staff, and the largest network of offices throughout Asia, our team continually succeeds in sourcing the best and most highly motivated Asia-based buyers for the properties we are appointed to sell.

Also, with residential investment now off the agenda for foreign buyers, they are far more focused on commercial opportunities, where Foreign Investment Review Board restrictions are negligible.

With migration and population growth at record levels, our economy strong, and the extraordinary wealth being created in Asia that needs to diversify away from home markets, Melbourne will remain a primary destination for Asian investment for the coming decades.

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