525 Flinders St may return to market after strong leasing turnaround
The only office on the south side of Flinders Street has gone from extended vacancy to full occupancy in the 15 months since it sold – and is now likely to come back on the market.
About 7773 square metres has been leased at 525 Flinders St, part of the 15-year-old Northbank complex at the corner of King St.
International headwear brand New Era Cap leased 525 Flinders St for its local headquarters, taking 898 sqm on level one.
Other commitments are to AMES, Antrick Education, The Great Escape Melbourne, TTW Engineering and Waterman.
Those deals span the third, fourth, fifth, sixth and eighth levels of the 11-storey building.
The leasing turnaround has materially changed the building’s income profile, with net rent now understood to be about $5.8 million per annum.
At a 7 per cent yield, that would imply a value of about $83m.
Cushman & Wakefield’s Daniel Wolman with Oliver Hay and Leon Ma, have been appointed to sell the asset.
Repositioning play
The A-grade Flinders St office with 10,271 sqm carried a 58 per cent vacancy when private investor Joe Cairns bought it from Swiss fund manager AFIAA.
The weighted average lease expiry was also short – less than a year.
The asset has since been repositioned through a series of amenity upgrades including end-of-trip facilities, showers, lockers and saunas.
A permit has also been obtained for an external LED electronic sign to be installed next month, adding another income stream, while the ground-floor foyer was revamped with a café added.
Tenants have access to a gym and business lounge, as well as secure bike storage.
“The leasing program has transformed the investment profile of the asset, with income now providing a much stronger foundation for the next phase of ownership,” Mr Wolman said (continues below).
“The quality of the income stream is increasingly important to office investors, particularly where leasing risk has been materially reduced,” he added.
“The combination of a substantially improved occupancy profile, longer-term income and upgraded amenity gives the asset a considerably different risk profile to when it was acquired,” according to the Head of Investment Sales, Australia.
“For investors, the appeal is now less about future potential and more about the income already being generated by the building.
“Investors can now come in and sit back with a high-quality building where the major work has already been completed, with little left to spend on the asset”.
Colliers leasing agent James McMahon said demand remained for CBD offices where landlords could improve existing stock without undertaking wholesale refurbishment.
“The conversation around Melbourne’s office market is often dominated by vacancy statistics but assets like 525 Flinders St tell a very different story – the commitment of the ownership group to reposition the building and continued confidence from occupiers who are willing to move when the right opportunity presents itself,” he added.
“The arrival of New Era Cap is particularly significant…securing an internationally recognised lifestyle brand is a strong endorsement of both the building and the precinct and reflects the increasing diversity of occupiers choosing Melbourne’s CBD,” according to the executive.
Unique spot
The position of 525 Flinders St gives it views across the CBD, Yarra River and Southbank.
The building sits on the Yarra River between the CBD’s midtown precinct and Southbank, with access to trams and about a three-minute walk from Southern Cross Station.
“The volume of leasing completed throughout the building since its acquisition demonstrates that demand remains active for the right product,” Mr McMahon said.
“Businesses are still making leasing decisions, but they’re being far more selective about where they choose to locate,” he added.
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