Melbourne office market still has Australia's lowest vacancy rates: HTW Commercial

Melbourne office market still has Australia's lowest vacancy rates: HTW Commercial
Melbourne office market still has Australia's lowest vacancy rates: HTW Commercial

The Melbourne CBD continued to record the lowest vacancy rate amongst all of Australia’s CBDs at 3.3%, in front of Sydney CBD at 3.7%, according to the latest report from valuation firm Herron Todd White.

The report found, tenant demand is continuing to rise in the city fringe.

Tenants, especially from the creative, technology and business service sectors, actively compete for well-located high-quality office accommodation.

Vacancy rates in the city fringe, inner east and outer east are well below long term average vacancy levels.

The vacancy rate in the inner east fell to 3.58%, making it the lowest vacancy rate of all of Melbourne’s metro precincts.

The report authors stated, "the CBD’s increasing rent level is creating greater demand in city fringe locations as tenants seek cheaper alternatives."

"Incentives are currently broadly ranging from circa 10% to 25% net depending on the tenancy size, lease term and location. In the south-eastern and outer-eastern markets where vacancy rates are high, incentives are at their highest whilst in the city fringe and inner eastern markets, incentives are at their lowest."

"There has been strong capital growth for commercial development sites in Cremorne and Richmond over the past two years, particularly within the past 18 months. Larger development sites above 1,000 square metres are in high demand in the current market as they allow greater development scale as opposed to smaller sites."

"Record high land rates have resulted in Cremorne and Richmond this year with a number of development sites selling for land rates in excess of $13,000 per square metre. However, we highlight that the development market in these areas is considered to be at the peak," the authors noted.

Buyer demand is still solid for CBD, city fringe and suburban well-located sub-$50 million investment commercial assets. Properties in this price range are keenly sought by higher net worth private investors, syndicates and overseas investors.

Investment yields within the inner city are being influenced by the underlying land values of the properties. Land rich assets usually reflect lower yields compared to investment assets which have been fully developed.

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Melbourne Office Market

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