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St Kilda Road Confidence Leads To Landmark Value-add Play

Posted on 21st May 2020

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Local and offshore investors continue to demonstrate confidence in Melbourne’s St Kilda Road, attracted to the high-performing office market’s strong fundamentals and its prospects beyond the current environment.

In the latest deal, Fitzroys Director Paul Burns sold 436 St Kilda Road for $62.15 million to Shakespeare Property Group, the property arm of boutique investment manager Prime Value Asset Management.

Burns brokered the off-market transaction on behalf of ASX-listed Flight Centre Travel Group, which has just successfully completed a $700 million capital raising. Flight Centre Travel Group has committed to lease back 75% of 436 St Kilda Road, having been long-term occupants and buying the property in 2008.

Numerous parties made offers to buy the asset. Ultimately, the deal was negotiated in an abbreviated timeframe and subject to a very short due diligence.

The 11-storey glass tower has a net lettable area of 7,506sqm and is on a 2,317sqm site opposite Fawkner Park. Five tenants occupy the fully-leased building, including Flight Centre and soccer’s state governing body Football Victoria.

Burns said that whilst in some areas of the market COVID-19 has brought on a “wait and see” approach amongst buyers, securely-leased investments remain highly sought after as cashed-up investors are more motivated to set themselves in bricks and mortar with income.

He said the strength of the result reflected the confidence investors have in the St Kilda Road market.

“Buyers taking a long-term view beyond the COVID-19 environment recognise St Kilda Road’s fundamentals have it well-placed to maintain its strong performance of recent years.”

He said investors and developers have been favouring office use along St Kilda Road after a period in which multiple properties were converted to residential, as tenants are seeking accessible city fringe locations with quality lifestyle amenity in greater numbers.

Burns said these factors have driven vacancy rates down and put upwards pressure on rents, and subsequent demand for St Kilda Road assets has been reflected in ongoing value increases over recent years.

“Investors have been actively pursuing St Kilda Road buildings with value-add and repositioning potential, looking to take advantage of Melburnians’ increasing preference to live, work and play across the inner city,” Burns said.

“My understanding is that SPG see this as an opportunity to buy a strategically located office property, in this case located a short distance from the future Anzac Metro station that will further enhance accessibility to St Kilda Road.

“The dearth of investment opportunities in this precinct encouraged the buyer to act quickly, and they will now set about adding value to the property and deliver strong returns to their investors.”

Anzac station is part of the $11 billion Metro Tunnel project and is due to open by 2025, complementing multiple tram routes at the doorstep of 436 St Kilda Road and at Domain Interchange close by. The building is also meters from Albert Park Lake and the Royal Botanic Gardens.

“In a market with a shortage of available quality stock, pent-up demand means a number of buyers are ready to pounce when opportunities arise,” Burns said.

“The depth of buyer interest from domestic and offshore parties, and the feedback received during the campaign demonstrated Melbourne has retained its safe-haven investment status, even throughout the uncertain climate.”