St Kilda Road: From premier office address to luxury apartments

And it’s getting less love from prospective corporate tenants by the day, with the vacancy rate for office space hitting 31.6 per cent last month – the highest of any corporate hub or CBD across the nation.

Now, there’s more than $1.5 billion of residential development is under construction along the strip.

The evolution of the boulevard is testament to the increasing demand for upmarket apartments from Melbourne’s ageing and more affluent population, as well as the effects working from home mandates have had on once prolific office hotspots like St Kilda Road.

In a sign of the times, ASX-listed Dexus, which once laid claim to being the country’s biggest office landlord, has submitted plans to convert an office building at 636 St Kilda Road – known as the former Cadbury building – to a $320 million residential tower with 402 residences.

In the property giant’s development application, it cites how market conditions in the boulevard have changed markedly, how the building’s occupancy had dropped and how interest rate hikes had reduced real estate values along St Kilda Road.

The trend has been gaining pace in recent years. Real estate financier Qualitas acquired the former office building at 499 St Kilda Road for $80 million and converted it into a luxury $300 million apartment building in 2017 with Melbourne-based developer LAS Group.

Another conversion is under way at the moment, with Devitt Property Group close to completing its luxury development, The Muse, at 409 St Kilda Road. It will feature 40 residences and will include a wellness centre with pools, a spa, gym, sauna and steam room.

Peter Devitt, managing director of the property development company, said the landholding once was home to a mansion which was then transformed into an office building in the 1970s. He purchased the building around 2003.

“I bought it as a passive investment, as an office building, always with a view of eventually converting it to residential,” he said. “I think [St Kilda Road] was always going to transform into residential because it’s one of the best boulevards in Melbourne.

“You’ll find the prices of these apartments will probably skyrocket over the next two to three years because the building costs over the last three or four years have gone through the roof.”

As the trend gains traction, some office buildings are being snapped up at significant discounts.

Billionaire businessman Solomon Lew acquired 417 St Kilda Road in September last year for $86 million – a significant discount to the $144.4 million paid by Singaporean government investor Mapletree in June 2017. Lew’s plans for the building have yet to be revealed.

Alan March, urban planning professor at the University of Melbourne, said St Kilda Road was unique in that it had always been Melbourne’s premier boulevard. It was a highly desirable address before the 1950s, when it was predominantly lined with stately mansions on large landholdings.

“St Kilda was previously very glamorous,” he said. “As the demand for office space grew in the 1950s, the Melbourne Metropolitan Board of Works decided to rezone and to allow offices to be built, and St Kilda Road became an extension of the central city with offices and embassies.

“Because the value of that land was so high, it meant it was viable for developers to build offices – that gave the greatest returns.”

Max Beck, founder of Beck Corporation and AFR Rich Lister, developed about six buildings along St Kilda Road over the past few decades, including at 562 St Kilda Road, the home of the View Hotel, and an office building at 312 St Kilda Road.

“St Kilda Road started as a boulevard with prestige homes 100 years ago, and it slowly converted to office. Then we got an office overload,” he told The Australian Financial Review.