CBD land rates top $30k psm, Suburban sites reach first ever $10k psm

The tsunami of capital flowing into the Melbourne property market from Asia will continue throughout 2016, providing ongoing impetus for further capital growth with demand for high quality properties continuing to exceed supply, according to Savills Australia's State Director CBD & Metropolitan Sales, Clinton Baxter.

The enormous capital inflow, according to Savills analyst Olivia Shackell, has seen yields for CBD office buildings and prime retail assets reach record lows of 5 percent and 3.75 percent respectively over the last 18 months. Also, for the first time ever, CBD land rates consolidated above $30,000 a square metre, Southbank sites hit record averages of $15,000 to $20,000 a square metre, and suburban land also reached a first ever $10,000 a square metre.

Mr Baxter, whose team sold more than half a billion dollars of CBD and suburban properties in more than 80 transactions during 2015, said high profile international retail brands, student accommodation providers, and buyers seeking properties with development and value-add options had been prominent and would continue to drive the market into 2016.

'Demand for retail, residential and commercial office investments will remain strong, irrespective of any market peak, while fundamental forces, including a flight of capital to safe haven countries such as Australia, immigration, and strong motivation to invest in a growth location, persist.

'We have just sold a CBD office building with 30 percent vacancy on a 5 percent yield. Two years ago it would have sold at an 8 percent yield.

'It has been a phenomenally strong market for a prolonged period and even if we do see a peak in the market in 2016 it will have little impact as demand remains very strong, indeed as white collar employment picks up and the disconnect between the sales and leasing markets eases, we should see a further rise in local investor interest,'' Mr Baxter said.

He said concerns that restrictions on the flow of money out of China would impact Australian property markets were misplaced given the sheer weight of funds, the volume of investors, and the wealth already transferred into Australia and other jurisdictions such as Singapore, Hong Kong and Dubai.

The research revealed off-shore buyers, including those from Malaysia, China, UK, Singapore, and Vietnam, accounted for 46 percent of sales by value, while developers dominated the market in terms of the number of properties sold with 71 percent, but investors spent more at 59 percent of sales by value.

Yields tightened by around 100 basis points over the course of 2015 as the pursuit for yield intensified throughout the market and were likely, Mr Baxter said, to remain relatively constant over the next 12 months assuming that the Reserve Bank maintains its current accommodative position in respect of official rates.

The research found almost all suburban locations were experiencing phenomenal growth driven by a housing boom and changes to residential zoning in areas supported by high amenity such as public transport, schools and shops.

Mr Baxter said that his team had recently sold a site in Box Hill at more than $10,000 a square metre, the type of rate that was only seen in the CBD up until two years ago.

Savills plc issued this content on 08 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 08 February 2016 01:12:17 UTC

Original Document: http://www.savills.co.uk/_news/article/110560/142370-1/02/2016/tsunami-of-capital-to-continue-to-flow-into-melbourne