Dividend For Backing The Whitehorse

The Age

Wednesday December 14, 2005

By CAMERON HOUSTON, COMMERCIAL PROPERTY REPORTER

PROPERTY developer Jim Lazzarotto's faith in the suburban office market has been repaid with Guild Insurance and Financial Services believed to have signed a lease for 5000 square metres in his speculative development in Hawthorn.

The deal was handled by Colliers International and equated to about $270 per sq m over a 10-year lease with options.

Colliers International suburban office chief executive Rob Joyes declined to discuss the lease agreement, but confirmed his involvement with the redevelopment of the former Whitehorse Inn site.

The Burwood Road hotel was the centre of a bitter land tax dispute with the State Government.

In March, the venue closed its doors after proprietor Jim Ryan succumbed to crippling tax bills, which had increased from $1440 in 1998 to almost $40,000 this year.

A spokesman from Guild Insurance and Financial Services declined to comment yesterday, but the firm is expected to relocate its national head office from nearby premises at 40 Burwood Road.

Construction on the speculative office project will begin early next year.

The deal completes a stellar year for Melbourne's suburban office market, with strong white-collar employment growth and stable interest rates fuelling demand from investors and owner occupiers.

Mr Joyes said office rents had increased by up to 15 per cent this year and predicted a further 10 per cent rise in 2006.

He said the Reserve Bank of Australia had signalled its intention to leave interest rates unchanged in the short-term, which augured well for 2006.

"This has provided business with the sort of confidence it needs to push ahead with plans for expansion and to pre-commit to new buildings, for developers to move into speculative construction, and for investors to take a more calculated punt on office property," Mr Joyes said.

Research from Colliers International revealed almost 50,000 sq m of speculative office development and refurbishment was under way, with about 40 per cent pre-committed.

Mr Joyes said the stagnant residential housing market would continue to motivate small investors to divert funds into strata offices, while the central business district parking levy could persuade some tenants to relocate to the suburbs.

The State Government's controversial levy will be introduced in January next year on all long-term parking spaces in the CBD, Southbank, St Kilda Road and Docklands, while parking meter charges will increase 25 per cent.

"In the suburbs you have a minimum of three, and in some cases five, car spaces for every 100 square metres, so everyone can drive to work and the company does not get slugged with the . . . levy or the same fringe benefits tax bill," Mr Joyes said.

But Colliers International Victorian commercial leasing manager Andrew Tracey remained upbeat about the CBD office market and forecast another year of positive net absorption and upward pressure on rents.

Mr Tracey said strong net absorption over the past two years had moved the market back into equilibrium with incentives starting to fall and face rents firming.

He said pre-commitment deals concluded this year would provide the foundation for a new construction cycle in 2008.

"Options are diminishing for larger tenants seeking space in the shorter term as new buildings and quality refurbished backfill space is filling up," Mr Tracey said.

© 2005 The Age

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