2.77% yield sets new CBD retail benchmark

A Chinese investor has paid $15.8 million for a freestanding Swanston Street property in Melbourne's CBD on a 2.77 percent yield setting a new benchmark for CBD retail properties.

Savills agents Clinton Baxter and Nick Peden who brokered the deal said the buyer of the 123 Swanston Street property - for several decades home to Melbourne's Hare Krishna organization - had purchased three weeks prior to the intended close of an expressions of interest campaign.

"This is the state of what is an extraordinary market where a purchaser buys several weeks prior to the close of a campaign with a knock-out offer more than $5.8 million or nearly 60 percent above expectations for the property.

"We received intense interest in this asset from many potential buyers with the key attractions being the property's central position on the favored western side of Swanston Street between Collins Street and the Bourke Street Mall, the high calibre of the tenants, value-add opportunities, and strong rental growth potential.

"This is one of the most tightly held city blocks, with years passing without purchase opportunities - indeed it is 16 years since a freestanding property in this central block of Swanston Street has sold.

"It is then no surprise that many investors were desperate to purchase this property from the moment it hit the market and that it sold at the staggering rate of $81,500 a square metre of land,'' Mr Baxter said.

The classically styled, eight level building is leased to two long-standing tenants including Downtown Revolution which occupies the ground and basement levels, whilst the Hare Krishna organization occupies three of the upper levels. Both tenants have five year leases at a total current rental of $438,400 per annum.

Mr Peden said the buyer could expect solid income and capital growth with the Melbourne CBD enjoying the fastest growing residential population anywhere in Australia.

"Melbourne CBD's population growth along with the trend of major international retailers entering the Melbourne market have both enhanced the CBD's reputation as an international shopping destination and driven rising retail spending and that is not lost on savvy purchasers," Mr Peden said.

He said the exceptional growth potential of well located CBD properties was clearly demonstrated, the vendor enjoying more than 800 percent total capital growth over the 18 years of ownership despite events such as the Asian Financial Crisis and the GFC during that period. The vendor purchased the property for just $1.86 million in 1997, after it was passed-in at auction.

Mr Peden said Swanston Street was the most popular street for retail property investment with the greatest rental and capital growth over the past 10 years.

distributed by