Wesfarmers Health is moving from suburban Camberwell to the CBD into the rejuvenated former Victoria Police headquarters, taking 3500 sq m in the 673 Flinders Street building, with options to expand into 5000 sq m. Peakstone, owner of the building, invested $80 million to refurbish it – from B grade to A grade – which attracted the AAA tenant.
One of the first CBD building “repositioning” opportunities of 2023 could well be a major litmus test for what may be to come.
JLL’s Melbourne CBD sales team is offering 99 Queen Street, a 4682 sq m building that is 50 per cent leased and located in the prime central CBD precinct near Collins Street.
“We anticipate strong interest, given the opportunity to reposition the asset and tap into the ‘flight to quality’ that we are seeing from the markets,” said Nick Peden, who is handling an international expressions of interest campaign along with Rutman and Mingxuan Li .
Jones Real Estate managing director Paul Jones said underperforming B grade city buildings represent an opportunity for well-established investors. “There is significant scope to update them into state-of-the-art workplaces, with sustainability and social amenity that caters to rising ESG standards,” he said.
A major success story, Jones said, is the Queen and Collins project – an upgrade of the former 34-storey ANZ office tower, along with three heritage buildings in the same block.
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Queen and Collins – an integrated office, retail and hospitality precinct – now offers 34,000 sq m of redesigned carbon-neutral A-grade office space, with 4.5 star NABERS energy rating and 6 star Green Star rating.
Among its high-profile tenants are Afterpay, ELMO Software, engineering consultancy Arcadis and fashionable Sydney restaurant NOMAD.
Jones said while the CBD vacancy rate has increased to more than 13 per cent – the highest since 1999 – it is not all doom and gloom, and there are signs of a revival, with a return of Chinese students, tourists, immigration and workers returning to the city.
Then there is the long-term growth story.
“If you consider the long term, Melbourne’s CBD population is expected to double by 2041, with the city also taking the mantle as Australia’s largest by population. In our view, which is reasonably supported by population projections, all the damage done by COVID-19 will be reversed,” Jones said.
JLL’s Rutman is also witnessing the turnaround. Following a post-pandemic lull, office tenant demand for the Melbourne CBD is on the rise, with 166 tenant briefs specifying “only the CBD” for future premises, he said.
“CBD office occupancy levels have also shown consistent improvement in seven of the past eight quarters, with predictions of 70-plus per cent occupancy by mid-2023,” he said.
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