A developer has recently amended a permit for a Commercial 1 zoned site in Malvern from 48 residential apartments with a ground floor office to seven levels of offices.
This is a quantum shift in the direction the market has taken in recent years wherein sites of secondary commercial value were developed for high density residential use. Whilst it may not yet reflect a general trend, it does indicate that despite the predicted shortfall of housing stock in 2021 and beyond, there are still headwinds for developers hoping to cash in or develop these sites that have often been accumulated over many years.
Some of the issues forcing this change of direction are:
- Spiralling land tax charges means that less sites can be held passively or on low returns.
- Pre-sales are not being met and finance can only be obtained from expensive mezzanine lenders which increases development risk.
- The removal of stamp duty savings for off the plan purchasers.
- A marked reduction in overseas buyers in the past two years and banks not recognising foreign buyers as a component of pre-sales.
- Issues of perception with buyers being concerned about cladding and potential structural issues.
The forecasted conditions for strong rental growth in the office leasing market is now generating interest in new office development. The CBD vacancy rate is the nation’s lowest at just 3.2% followed closely by 4.5% for the city fringe. There is currently just shy of 400,000sqm of office space under construction in the CBD, with a staggering 84% already pre-committed. The Melbourne office market boom is expected to continue for at least the next 5 years with prime CBD rents expected to rise 30%-40% during that time. This uplift and tightening supply will carry on into the city fringe and suburbs as businesses seek the convenience and value on offer. Developers will therefore look to take advantage of these opportunities.
If you have a site where you are not sure what the highest and best use in the current market may be please contact me directly for a confidential discussion.
Written by Nick Breheny
"Nick commenced his career in the Eastern Suburbs and brings over 30 years’ experience in commercial property sales and leasing with an emphasis on development sites and investment property."