An unidentified mainland Chinese investor has recently moved significantly to Australia’s second-largest city, Melbourne, by acquiring an ageing office building in the central business district (CBD). This transaction, valued at $20.2 million, marks the first significant office deal of 2023 for the first half of this year.
The 12-storey office block located at 99 Queen Street changed hands after an intense bidding process that attracted over 200 potential buyers from mainland China, Hong Kong, Singapore, and Australia, according to property consultancy JLL. The Age reported the sale, citing a price of A$30 million ($20.2 million) for the building, which was constructed in 1967.
JLL’s executive director and head of capital markets for the state of Victoria, Josh Rutman, along with agents Nick Peden and Mingxuan Li, managed the expressions of interest on behalf of the family that owned the property for 17 years. Despite lower-than-average deal volume in Melbourne’s CBD, Rutman believes this transaction highlights the growing recognition of value in well-located assets by offshore investors, even if substantial upgrades are required.
“We are seeing a notable influx of enquiries and bidding from Singapore, Hong Kong, and mainland China, which we expect to increase as the year progresses,” Rutman stated.
The office building at 99 Queen Street is one block north of Melbourne’s bustling Collins Street. It boasts a net lettable area of 4,682 square meters, with a current occupancy rate of 48 per cent among a dozen tenants. The building features basement retail space and floor plates averaging 379 square meters.
The successful buyer, entering the Melbourne CBD market for the first time, was identified through JLL’s Asia markets division. The purchaser paid A$6,408 ($4,316) per square meter of net lettable area for the freehold property. JLL reports that the buyer considered the significant upgrade works needed to bring the building up to standard and meet tenant expectations. Research conducted by the agency indicates that 46 per cent of tenant briefs prefer nothing less than a Grade A office building, prompting investors to consider Grade B buildings for refurbishment projects to capture future tenant demand rather than focusing on development sites.
Josh Rutman explained, “The prospect of finding an appropriately sized parcel of land has diminished as the CBD has been largely built out. If you couple this with increasing construction costs, the alternative of refurbishing older buildings has become the preferred avenue for investors.”