Morgan Stanley Fund Plans Melbourne Office Investments

Morgan Stanley Real Estate Investing’s Singapore-managed fund increased its exposure in Australia by acquiring its second office property investment.

Prime Property Fund Asia expanded its office property investments in Melbourne, following a $140 million stake purchase in a 664 Collins Street building. The acquisition indicated the real estate fund’s plans to build a commercial portfolio in major cities in the Asia-Pacific region.

Building Specs

The fund’s acquisition of a 50% stake in the office building comprises half of the nine-floor property, which will be completed in 2018. It comprises 26,000 square metres of space at a Docklands site, which is an extension of the city’s central business district.

In terms of office design, Melbourne buildings follow certain height restrictions as evidenced by the 664 Collins Street property’s number of storeys. Still, these commercial structures prove to be attractive to investors.

Prime Property Fund Asia acquired the half stake on a yield of 5%, as home prices in Melbourne and other cities are on a mixed growth trend.

Falling Prices

CoreLogic data showed that residential property prices in Melbourne slightly rebounded in the last week of May with a 0.3% increase. Prices in Sydney remained flat, while Perth home values rose 0.8%.

For the month of May, home prices dropped partly due to the government’s tougher controls on lending, as they feared a housing bubble might take place. An increase in interest rates for bank loans, particularly for interest-only borrowings, also contributed to the decline in home prices.

Despite concerns about a real estate bubble, CoreLogic Head of Research Cameron Kusher said that the market has not yet reached its peak.

Office properties remain among the best lucrative investments options in Melbourne. As home prices continue to have a mixed growth trend in the city, the commercial real estate market may be a better alternative.