Metro Melbourne holds lowest vacancy in Australia
April 13, 2011
Metropolitan Melbourne now has an office vacancy rate lower than the CBD, making it the tightest office market of any major capital city in the country, according to Colliers International’s latest Melbourne Metropolitan Office Research and Forecast Report.
The research found the metropolitan market has followed the CBD’s lead and continued to gain strength over the last six months, emerging as the strongest office market in the country.
According to the data, all suburban and fringe regions in Melbourne posted a decline in their office vacancy rate in the last six months, from October 2010 to March 2011.
The overall metropolitan vacancy rate declined from 7.3 per to 5.8 per cent in that time, lower than the CBD vacancy rate of 6.2 per cent.
The research found activity in the metro markets was buoyed by strong ongoing demand and approximately 56,551 sq m of positive net absorption.
Jason Kuan, Colliers International Research Analyst and author of the report said the lack of new development that followed the GFC due to a lack of funding is still a major influencing factor.
“The lag in construction completions coupled by pent up tenant demand has resulted in downward pressure on vacancies, and upward pressure on rents,” he said.
“Only five buildings have been completed so far this year, adding just 15,200 sq m to the market, which is a minimal 0.6 per cent increase in total stock levels.”
With only 37,000 sq m of office floor space under construction to be completed during 2011 and 2012, Colliers International has forecast the vacancy rate will reduce further to 3.8 per cent by the end of 2011.
The Outer East region, Melbourne’s biggest suburban office market, outperformed all other regions.
Vacancy in the Outer East declined from 8.2 per cent in October 2010 to 7.2 per cent in March 2011 and is forecast by Colliers International to reduce to 3.9 per cent by the end of 2011.
Rob Joyes, Colliers International Office Leasing Director, said expansion of existing tenants, particularly in the Government sector, was a major factor in the downward pressure being placed on vacancy in the Outer East.
“In Box Hill, Government tenants have been renewing their leases over six months to March 2011, while in Burwood East the expansion of Government tenants such as ESTA and CFA within Tally Ho Business Park has had a big impact,” he said.
“In addition to expansions and moves within the region, tenants who were previously located in industrial precincts are moving in a bid to be closer to the CBD.
“Examples include PZ Cussons and Outotec who relocated from Dandenong to Mulgrave,” he said.
With no contiguous floor spaces in excess of 3,000sq m available at present in the Outer East region, Mr Joyes said some tenants wanting to stay or move into the region will need to start considering pre-commitments.
Mr Joyes said the low vacancy rate in the Outer East, combined with ongoing strong tenant demand and has led to a 20% growth in average net face rents, moving from $250/sq m to $300/sq m over the six months to March 2011.
According to Colliers International’s research, face rentals witnessed an increase over the last six months across all regions, while incentives declined in all regions except the North and West regions by an average of 2.5 per cent to 4 per cent.
“The pent up tenant demand and lease renewals will continue to drive net face rent growth,” Mr Joyes said.
“Meanwhile, the lack of quality options available will see an increase in pre-commitment activity thereby increasing construction activity.”
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