Subdued tenant demand coinciding with a softening in labour growth and business confidence should see a rise in Melbourne’s CBD vacancy rate in the short term however with a pick-up of white collar employment forecast in the CBD next year, the market looks set to rebound by mid-2014.
Knight Frank Leasing Director Hamish Sutherland said, “Despite the global softening, the Melbourne CBD office sector has outpaced Sydney, Brisbane and Perth in terms of white collar growth over the past decade.” He added that “Melbourne’s CBD office market is also unique in that it offers competitive rentals compared to its local counterparts.”
Mr Sutherland said, “Although tenant demand has been subdued in these challenging times, the CBD’s comparable rental levels across Melbourne’s other office markets continues to result in tenants being attracted to the city.
“In the short term, annual net absorption is forecast to remain positive, supported by these incoming tenants which include Melbourne Water, Aurecon and Pearson,” he said.
According to the latest Knight Frank Melbourne CBD Overview, “Office vacancies are forecast to rise to 6.4% in July 2012, peaking at 8.2% in July, 2014 as a result of tenants contracting and others relocating into recently completed developments.
“While 129,137 square metres is scheduled for completion this year and a further 126,057 square metres in 2013, supply levels remain below the 10-year historical average of 134,643 square metres. Beyond 2013, it is likely that new supply will remain below the 20-year average for at least the short term.
“Of the 302,694 square metres that is due for completion over the next three years, much is already pre-committed with 89,788 square metres available for lease. While 70% of the development pipeline has been pre-leased, a further 179,000 square metres of backfill space has been identified to come online over this period,” the report has found.
Knight Frank Research Director, Richard Jenkins, said the Docklands will continue to deliver the majority of new supply in the short term. In 2013, Marsh Mercer and NAB are scheduled to move into their new offices at Walker’s Collins Square project and the Cbus development at 700 Bourke Street respectively. Charter Hall and Cbus will jointly develop the Eastern precinct’s first Premium graded tower in twenty years at 171 Collins Street supply an additional 29,057 square metres of office space.
Mr Jenkins commented that there is likely to be a pause in rental growth over 2012 however net face rents are expected to remain steady for Premium and A Grade stock. “There is some downward risk for net face rentals in the secondary grade assets impacted by the increasing backfill and sub-lease accommodation.
In terms of sales, Mr Jenkins said so far over 2012, there has been limited transactional activity with just three major sales totalling about $160 million but increased demand has resulted in a marginal tightening of core market yields.
“Continued offshore interest and the increasingly attractiveness of property yields should lead to further transactions over 2012.
Mr Jenkins added that many of the A-REITs are now in a position to acquire stock having restructured their balance sheets leading to added competition for institutional grade assets.
For further information, please contact:
Olwyn Conrau, Media Consultant, 0413 600 350
Richard Jenkins – Research Director -
Notes to Editors
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and its New York-based global partner, Newmark Knight Frank, operate from 245 offices, in 47 countries, across six continents. More than 7,067 professionals handle in excess of US$816 billion worth of commercial, agricultural and residential real estate annually, advising clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit www.knightfrank.com