The Melbourne CBD commercial property market has performed strongly over 2019, continuing its momentum from the preceding year and setting record capital value rates and sharp yields, new data from Colliers International has revealed.

According to research from the firm, the Melbourne CBD market has performed exceptionally well year-to-date, with a total of 12 middle-market assets having transacted between $10 million - $100 million as of October 2019. 

This has pushed the total transaction volume of sales up to approximately $475million, averaging a capital value rate of over $15,000 and a sharp yield of 2.67 per cent.

At a glance:

• New data from Colliers International has shown that the Melbourne CBD commercial property market has performed strongly throughout 2019, with a total of 12 middle-market assets having transacted between $10 million - $100 million as of October 2019. 
• The total transaction volume of sales is approximately $475 million, averaging a capital value rate of over $15,000 and a sharp yield of 2.67 per cent.
• Initial yields have demonstrated a strong downward trend with capital value rates creeping upwards, averaging $15,000 per square metre.

Colliers International National Director of Melbourne City Sales, Daniel Wolman, said the office investment market had been fuelled by the record low vacancy rate of 3.3 per cent- one of the lowest vacancy rates we have experienced since 2008. 

“The low vacancy rate has translated into the continued rise in rents and capital values, leading to further compressions of yields,” he said.

“We are seeing more and more local add-value players competing for high-quality middle-market assets within the Melbourne CBD. 

“The shortage of stock has also led to institutional players entering the $10 million - $100 million price bracket which is not traditionally explored by institutions.”

Whilst the number of transactions decreased from 2018 and then remained steady throughout 2019, initial yields have demonstrated a strong downward trend with capital value rates creeping upwards, averaging $15,000 per square metre.

The most recent sale of Swann House, 22 William Street, Melbourne demonstrated a sharp yield of 2.55 per cent, in which sub 3 per cent yields are becoming increasingly commonplace.

The sale of 45 Exhibition Street, Melbourne, which transacted in April 2019, showed a record high capital value rate of $17,562 and a yield of 1.33 per cent.

Colliers International Melbourne City Sales Director Oliver Hay said the cutting of the national cash rate had "arguably" fuelled the confidence of the commercial investor market.

“The Reserve Bank of Australia's cash rate cut has provided a lower cost of borrowing coupled with an increase in appetite for quality commercial property offerings from investors and add-value players,” he said.

“We anticipate this trend to continue throughout the rest of 2019."

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