Melbourne office market to remain strong until 2014: Colliers

The Melbourne office market looks set to continue to strengthen over the next three years, with more than 70% of the 260,000 square metres of new CBD office space scheduled to be completed during the next two and a half years already pre-leased.

This strong forecast follows a six-month period from January to June 2011 when the Melbourne office market demonstrated the highest level of net absorption nationally, according to Colliers latest Melbourne office research and forecast report.

The market recorded net absorption of 55,000 square metres, 22% higher than the long-term average of 45,000 square meters.

Colliers forecasts the Melbourne office vacancy rate to increase from 5% to 5.5% by July 2012 when new supply starts coming onto the market. It is then expected to decline to 3.9% by July 2014.

Strong tenant demand and limited contiguous options fuelled rental growth over the 10 months to July 2011, with a 9% growth in net effective rents for prime assets and 13% growth for secondary assets.

In the six months to July 2011, growth moderated, with premium net effective rents increasing by 2.5%, A-grade net effective rents remaining stable and B-grade net effective rents increasing by 1.9%.

Demand for office space from finance and insurance Services drove demand during the first half of 2011, with total white collar employment growth in the Melbourne CBD up 1.9% above the long-running average of 1.8%.

Over the second half of the year demand for office space from the real estate services sector, manufacturing and utilities is expected to be strong, with these sectors all forecast to grow by between 4% and above according research by Deloitte Access economics.

No new office supply is expected to be delivered in 2011.

In 2012 an additional 131,000 square metres in office space is expected to be delivered, with 70% already pre-committed. This includes:

  • The refurbishment of 555 Bourke Street adding 20,172 sqm with 6,000 square metres pre-committed so far by law firm Holding Redlich

  • The completion of 357 Collins Street will inject 30,364 sqm into the CBD with the CBA leasing 8,431 square metres and Service Stream leasing 7,500 square metres.

  • The ATO is expected to relocate to 735 Collins Street in 2012. This building is almost fully pre-committed, with only 2,850 square metres vacant.

  • The Goods Shed South at 731 Bourke Street in Docklands will also be completed in 2012, with Pearson Publishing pre-committed to it, leaving only 1,800 square metres vacant

  • The final two buildings to be completed in 2012 are 990 La Trobe street, with full occupancy by Melbourne Water, and 850 Collins Street with 62% pre-committed by Aurecon.
Looking ahead to 2013, three buildings totalling 132,000 square metres are likely to be completed, with the majority (78%) pre-committed, leaving prospective tenants with limited options for new, quality office space.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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