Developing A Better Outcome

By Nick Breheny August 23, 2017
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The value of identifying the highest best use for the commercial component of a new building and combining quality commercial spaces within the ground floor of multi-level developments should not be underestimated. 
When the 7-level mixed use development Vivid on Malvern (located at 1516 Malvern Road, Glen Iris) was approved, it comprised 48 residential apartments above a 450sqm ground floor office.
Typically, office space in similar secondary locations command rents of around $300/sqm net, using, for example nearby Cato Street as a benchmark. Despite this location’s direct access to the train station and freeway, by secondary, we mean limited access to retail amenities such as shops, cafes, community services such as gyms, libraries etc. 
During the early days of construction, we identified that a better return on the ground floor space could be achieved with an alternative use, in this case as a gym. The significant number of apartment buildings within the immediate area would provide a good target client base for the gym, not to mention, the convenience of an on-site gym offers appeal and clear benefit to residents.
We were able to introduce a gym operator and worked closely with the developer and tenant to enable the change of use with the local Council. The developer was saved expensive office fit out costs and therefore able to contribute towards the tenant’s required fit out.
A stronger rate of $350/sqm plus car parking at $90 per space per month was achieved together with a longer lease term of 5 years plus Options. An office tenant would have likely wanted a lesser lease term.
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Once filled with a strongly branded tenant on a good lease covenant, real value is added to an often overlooked component of the build. Developers can then sell these spaces on very tight yields and similar rates/sqm to the apartments. 
A good example of this would be the recent sale of the strata ground floor retail at 121 Power Street, Hawthorn (corner Burwood Rd).
The property was offered with a new 5 year Lease to Rustica Café Group, returning $62,500 per annum (rate of $563/sqm). The auction was well contested and resulted in a sale price of $1.77 million representing a rate of $15,945/sqm for the 111sqm of building area and a yield of 3.5%.
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Nick Breheny

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."

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