A five-storey commercial office put up for sale by Adelaide-based fund manager Harmony Property Investments will be an early test of investors’ appetites in an environment of rising interest rates.
The East Melbourne building, developed by the failed Becton Property Group and purchased by Harmony in 2009, is expected to fetch more than $60 million. It adjoins a gleaming residential tower that was part of the original complex.
The property is being offered to investors just as the Reserve Bank hiked the official interest rate to 0.35 percent from 0.1 percent, the first hike since November 2010 and the first mid-campaign hike since 2007.
Analysts expect higher borrowing costs to impact the entire real estate sector, not just home buyers.
“We’re estimating up to a 20 percent earnings headwind from higher debt costs,” the Macquarie analyst said of the impact of rising interest rates on Australia’s real estate funds.
The building at 289 Wellington Parade South, occupied primarily by Arthur J. Gallagher & Co, is one of the few large offices on the eastern edge of the city’s CBD.
Daniel Wolman of Selling Agent Colliers International said despite Tuesday’s rate hike, debt costs are still at historic lows.
“Even with a slight increase, they are still low and borrowing costs affordable. Investors we speak to aren’t afraid of it and still see the value in real estate,” he said.
East Melbourne is one of the busiest office markets in the city and has low asset turnover.