‘Good buying’: City fringe offices sell despite interest rate hikes

By Simon Johanson

Local investment manager Bayley Stuart Capital has boosted its city-fringe portfolio after scooping up an East Melbourne office for nearly $52 million.

The five-level office at 89 Wellington Parade South was offloaded by Adelaide-based fund manager Harmony Property Investments for $51,785,000 on a passing yield of 4.5 per cent.

Bayley Stuart, run by Alasdair and Andrew MacGillivray, has a strategy of snapping up new offices on the city’s fringes. In the last three years it has accumulated several buildings in Cremorne and Abbotsford, at least two of them off the plan.

The five-level office in East Melbourne, with a lettable area of 5526 square metres, is anchored by Arthur J Gallagher & Co.
The five-level office in East Melbourne, with a lettable area of 5526 square metres, is anchored by Arthur J Gallagher & Co.Credit:

The East Melbourne property was first pitched to investors in May just as the Reserve Bank lifted the official cash rate for the first time since November 2010. It was also the first rise in the midst of a federal election campaign since 2007, but since then, rates have risen five times to land at 2.85 per cent.

Despite the subsequent rises, Daniel Wolman from commercial agency Colliers said the Wellington Parade property attracted strong interest from both domestic and international buyers.

Wolman, who negotiated the deal with Matt Stagg, Oliver Hay and Leon Ma, said the building’s proximity to the east end of Melbourne’s CBD makes it an attractive prospect to tenants.

The office, with a lettable area of 5526 square metres, is anchored by Arthur J Gallagher & Co. It backs on to a gleaming residential tower that was part of the original complex developed by the failed Becton Property Group and purchased by Harmony in 2009. The building is about 80 per cent occupied.

It sits on the south side of the Fitzroy Gardens, next to the Jolimont rail yards.


Andrew MacGillivray said the firm has been “chipping away” at the East Melbourne deal for a few months. The Reserve Bank’s series of rate rises meant properties were trading at “much more attractive price points”, MacGillivray said. “It’s bringing a bit of value back to the market.”

There is no shortage of demand from tenants for top-end city-fringe offices. “We’re seeing really strong demand, particularly in modern assets with communal spaces and good locations,” MacGillivray said.

The investment firm owns a fully leased building at 600 Church Street which it bought for $50 million and another tenant-free building in the same suburb at 1 Gordon Street that it purchased, also for $50 million, from CostaFox.

The firm subsequently leased up the Gordon Street building with tenants including philanthropy organisation Paul Ramsey Foundation, Roger Federer’s global footwear brand On Running and liquor manufacturer Pernod Ricard.

Bayley Stuart struck a fund-through deal during COVID-19 with CHT Architects and Hamilton Marino builders to buy a 10,000 sq m office they had developed in Abbotsford for $86 million. The firm sources funds for its purchases from high net worth private investors.

MacGillivray said taking on the leasing risk of buying empty buildings allowed the firm to add a lot of value. “We do expect to see some good buying opportunities next year and beyond,” he said.

The CBD, East Melbourne and Docklands have seen about $753 million in assets worth between $10 million and $150 million trade this year, Colliers estimates.

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