Business

Strata yields sharpen on investor appetite

Demand for strata office investments has pushed yields to record sub-5 per cent levels in Melbourne's CBD.

The unprecedented enthusiasm for strata stock paid off for the former owners of 9/313 La Trobe Street, who sold the 500-square metre whole floor office for $2.85 million in late December on a record 4.8 per cent yield.

Title documents show the owner, a company called Snomere, bought unit 9 in 1997 from the liquidator of the collapsed Pyramid Building Corporation, paying only $212,683.

Nearly 20 years later, the unit, which has a new six-year lease in place, was snapped up by an offshore investor.

CBRE agent Tim Last, who negotiated the deal with Tom Tuxworth, said "a real lack of supply in the market for quality investments" is driving the strata market.

"That's a pretty sharp yield. We sold others under 6 per cent last year but two years ago they would have been achieving 7.5 to 8 per cent yields," Mr Last said.

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The price represents a 24 per cent increase on the last sale in the building. Level four sold in July for $2.3 million. 

During 2016, the first strata office to break the 5 per cent barrier was a small 146-square-metre suite at 620 Bourke Street which sold on a yield of 4.93 per cent.

Strata office values surged more than 25 per cent over 2016, with records smashed. A 280-square-metre office at 6/41 Exhibition Street sold for a record $10,700 per square metre.

Property Council of Australia research shows strata office vacancy is only 3 per cent, less than half the 7.7 per cent rate among other general office space.

"There's a lot of demand for vacant space so if the tenant moves out, it's not hard to find another occupier," he said.