509 St Kilda Road sale sets record pricing

Hero Shot - 509 St Kilda Road (hi-res)

Beville Group exits St Kilda Road in record breaking style as Melbourne office market reaches new heights

After a highly competitive campaign, the private Beville Group has sold its prized St Kilda Road office tower to a mainland Chinese investor for $163,000,000.

The deal is the latest to highlight the strength of the Melbourne office market, with three rounds of bidding required to identify the preferred purchaser of 509 St Kilda Road.

Brokered by CBRE’s Kiran Pillai, Lewis Tong, Josh Rutman, Mark Wizel and Luke Etherington, the sale was struck on a fully leased yield of 4.96% and a building rate of $8,300/sqm – setting new benchmarks for the St Kilda road office precinct.

The prominent 1990’s building occupies a high-profile, 6,070sqm site backing onto Fawkner Park. It is fully leased and offers a net lettable area of 19,650 sqm, with major tenants including AIA, the Federal Government and Fuji Xerox.

“The sale is a strong indicator of the comfort buyers have in St Kilda Road real estate and the market’s long-term potential,” Mr Pillai said.

“Domestic and international buyers were vying for the asset, with the purchaser selected due to the unconditional nature of the offer, which wasn’t the highest bid received but one which offered minimal risk to the vendor.”

The purchaser was represented by Thomson Geer’s Eu Ming Lim and the vendor by Jennifer Huppert of KHQ lawyers.

Mr Pillai linked the strong fundamentals of the St Kilda Road market to the depth and diversity of interest in the sale campaign.

“St Kilda Road has experienced some of the strongest net effective rental growth in the country, which has spurred investor interest in what is increasingly being viewed as a natural extension of the Melbourne CBD Hoddle Grid,” Mr Pillai said.

“The market is also continuing to show plenty of value, despite values reaching historic highs, considering that CBD buildings have been transacting for more than $13,000/sqm.”

Mr Pillai also noted that white collar employment growth in the June quarter had added another 300,000 workers to the Victorian workforce, which was having a positive impact on office take-up and rental growth.

“Tenant incentives are also falling at a significant rate for the first time in 18 months,” Mr Pillai said.

The National Director of CBRE’s Asian Services Desk, Lewis Tong, said the 509 St Kilda Road deal highlighted a flight to quality real estate by major European and Asian investors, who were actively pursuing office and retail investment opportunities in Melbourne.

“A significant change in 2018 has been the increased international investor interest in land-rich, income producing assets, which offer long-term redevelopment potential,” Mr Tong said.

Many Chinese, Malaysian and Singaporean groups are continuing to re- weight their portfolios towards Melbourne seeking this style of asset, which was highlighted by the depth of interest and strong bidding for 509 St Kilda Road.”

Beville Group purchased the tower in 2014 for $84,000,000 from Calibre Capital in one of the first major St Kilda Road transactions of the current market cycle.

Beville Group Chief Operating Officer Rael Hurwitz said; “We’re delighted with the outcome and interest generated during the campaign. We’ve had a great experience with the property and St Kilda Road and we’re sure the purchaser will enjoy the same in the years to come.”

Several high profile domestic and international investors have since invested in the precinct, including Tong Eng Group, KKR, Mapletree Investments, Abacus/Wing Tai and the owners of the Dymocks bookstore chain.

Prior to the sale of 509 St Kilda Road, the highest price paid in the precinct was $144,000,000 with Mapletree’s purchase 12 months ago of 417 St Kilda Road.

“That transaction reflected a fully leased yield of 6.26% and $7,200/sqm – demonstrating the rapid pace of change St Kilda Road has witnessed in a short period of time,” Mr Pillai said.

Recent St Kilda Road Investment Sales:

Property Sale Price Sale Date NLA Rate ($/sqm)
10 Queens Road $60,000,000 Jul-18 6,833
464 St Kilda Road $95,380,000 Apr-18 6,898
312 St Kilda Road $76,818,000 Nov-17 7,795
324 St Kilda Road $68,840,000 Aug-17 6,582
417 St Kilda Road $144,400,000 Jul-17 7,197