Why owner-occupiers are buying offices on the fringe of Melbourne's CBD

This demand is showing up in areas such as Cremorne, Abbotsford, North Melbourne and West Melbourne.

CBRE sales agent David Minty said that in recent weeks the agency had sold three city-fringe buildings to owner-occupiers for a combined total of close to $7.8 million.

“We’ve seen business owners work out that the funding’s cheap at the moment and mortgage repayments over 12 months are going be less than rental payments.

“For instance, if you’re paying $200,000 a year in rent, but could buy your own property and only pay $100,000 you would, and that’s why we’ve seen so many sales, particularly in the past 18 months,” he said.

Office properties in Cremorne were in such demand and had reached such a high price that many of these owner-occupiers were starting to look to other emerging suburbs of West Melbourne, South Melbourne and North Melbourne, which were a comparable distance from the city, he said.

Data from CBRE shows rents in Melbourne’s CBD office fringe market have risen 16 per cent in the last 12 months.

The effect has been particularly pronounced in Cremorne where research from Knight Frank shows rents have gone up by 88 per cent in the last four years to an average $570 to $600 per square metre.

In July, vacancy rates in the suburb and nearby Collingwood were at zero, while in the whole inner-east region the office vacancy rate was at 3.5 per cent.

According to Knight Frank associate director Finn Trembath, Melbourne’s significant population growth means the inner east is receiving an inflow of buyers priced out of the CBD as well as those attracted to the area in its own right.

“Millennial workers are the new workforce, and a lot of these people want to live in inner-city suburbs in places like Abbotsford and Collingwood, and that’s also where they want to work.

Businesses will go to those areas if they’re smart because that’s where the good young staff are and want to be in future, so it makes sense to set up in those areas,” Mr Trembath said.

In Sydney, office properties, particularly in fringe suburbs such as Redfern and Surry Hills, have increased significantly in value, in part due to a lack of supply and owners willing to pay a premium to stay close to transport and infrastructure.

Savills director Neil Cooke said it was rare for large sites to come on the market in that part of the city and when they did they were snapped up quickly.

“There’s a lot of owner-occupier companies in and around Surry Hills and Redfern because they want to be located close to Central station and to the city,” Mr Cooke said.

“A lot of these employees don’t want to be driving cars through the city, so they’re not really fussed on car parking. This area will be a very sought after micro-economic hub with the expansion of the Australian Technology Park.”