Melbourne office space expected to see strong rental growth: Cushman & Wakefield
Melbourne’s office market was expected to have compressed further in the quarter ended September 2016, helped by moderate deal activity and strong service sector jobs growth, according to the latest office market report by commercial real estate firm Cushman & Wakefield.
The fourth quarter marked the last inflow of new stock in the current development cycle with the completion of Towers 2 and 4 at Collins Square, the firm says in its Q4 Office Market Outlook for Melbourne.
With only the return of refurbished stock forecast for 2017, the new development cycle is expected to begin in 2018 with the development pipeline for completion stretching to the early 2020s.
Sydney pain is Melbourne’s gain too. With the Sydney CBD facing stock constraints and heated face rents, Melbourne’s attractiveness remains, says the report.
Moderate deal activity has fuelled expectations of further compression from the Prime-grade vacancy rate of 6.7 percent reported in July.
Q4 prime gross effective rents rose 8.4 percent on an annual basis to $503 per sqm, with the upward trend expected to continue into 2017.
“As Sydney prime gross effective rents are trading at a 77 percent premium to Melbourne, tenants operating in both cities may prioritise Melbourne for future growth,” it says.
Transactions of note in the quarter include Deloitte pre-committing to 22,000 sqm as anchor tenants at 477 Collins Street, and Transurban signing on for 14,000 sqm to anchor Collins Square Tower 5. Collins Square Tower 4 is now at full capacity with Devondale Murray Goulburn committing to 5,200 sqm and PEXA committing to 2,600 sqm.
The report forecasts strong rental growth in the near term as new supply will not be able to catch up with strong demand.
“With a significant pipeline of confirmed and mooted future developments, and effective rents trading at a significant discount to Sydney, Melbourne appears to have time yet to run in this phase of the cycle,” it concludes.