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Outer East office market takes off as tenants are priced out of fringe, inner east

Colliers International launches new Metro Office Reseach & Forecast Report

Melbourne’s Outer East office market is set to benefit from the strong rental growth and unprecedented supply and demand conditions that are pricing some tenants out of the city fringe and inner east precincts. 

According to Colliers International’s new Metro Office Research & Forecast Report, the A Grade office market in the Outer East is performing well, despite its higher vacancy conditions.

“The A Grade market in the Outer East continues to be one of the better performing markets, despite the higher vacancy conditions that the market has been experiencing,” Anneke Thompson, Colliers International National Director of Research, said. “This is certainly changing, as vacancy has dropped from 9% in September 2017, to 7.4% in March 2018. Given the long term vacancy rate in the Outer East is 9.6%, these are indeed tight conditions for occupiers looking for space in the Outer East.

“Net absorption continues to outperform all other precincts in the metro market, and almost 65,000sqm of space was absorbed in the past year.”

Rob Joyes, Colliers International National Director of Office Leasing & Capital Markets, said the Outer East – particularly areas such as Mt Waverley and Mulgrave – were beginning to draw the attention of tenants who may have been traditionally looking for offices in the City Fringe or Inner East.

“It is becoming increasingly evident that the Outer East is becoming a more attractive option for many businesses who are being driven away from the City Fringe and Inner East by the tight supply that has been driving record effective rental growth in these markets for the past three years,” Mr Joyes said. 

“The price difference now between average effective rents in City Fringe/Inner East area and the Outer East has widened, and as a result more tenants are reconsidering how much weight they place on the importance of staff amenity and proximity to the CBD versus affordable, good quality office accommodation.”

Mr Joyes said business parks in the Outer East had been reinventing themselves in terms of the level of amenity that they could offer within their precincts, as they compete to catch the eye of those tenants who wanted the amenity of the City Fringe or Inner East without the price tag.

“It is not uncommon for business parks to have several high quality, Collins Street-style cafes on the premises, alongside childcare, recreation and fitness facilities,” he said.

“Both MTAA and Salta Properties are currently constructing serviced apartments within their business parks, with Quest apartments at Ferntree Business Parks and Salta’s own brand Tribe at Nexus Corporate Park.

“The Outer East also continues to provide high ratio car parking, which is particularly important for industries with a large mobile workforce.

“The Outer East is coming off a low base but we see this as a turning point. From an investment perspective we are also seeing increased momentum – institutional investors can see the rental growth and are starting to invest in this precinct. 

“In the last 24 months, MTAA, Fife Capital and Stockland have invested a total of $330million in suburban business parks in the Mt Waverley/Mulgrave precinct alone.”

Ms Thompson said while face rents across the Outer East had only seen moderate increases over the past year, incentives had reduced from an average of 27% a year ago, to 23%. This had  resulted in good annual effective rental growth of 8.8% over the year to March 2018.

“The Outer East has traditionally supplied the occupier market with plentiful new A grade stock, however, while the vacancy rate remained high, new supply has somewhat dried up,” Ms Thompson said. “Only 6,000sqm was added over the past six months. This is about half the long term supply rate in the Outer East. 

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Rob Joyes

Director In Charge | Melbourne East & National Director

Capital Markets & Office Leasing

Melbourne East

Over the last sixteen years Rob has built an arguable and enviable reputation as the most dominant agent in the Melbourne Metropolitan office market, specialising in major project leasing and development sites.

Rob's unique perspective combines specialized experience and knowledge with a creative, solutions-driven approach to understanding and fulfilling his client needs. He has built strong relationships, delivered results and become a trusted advisor to some of the most prominent local and national investors and occupiers.

Since 2008 alone, Rob has sold $450 million in value of development sites and commercial investments and leased approximately 190,000sqm on behalf of Stockland, Australand, Investa, Goodman, Colonial First State Property and Salta Properties. In 2013 he assisted corporate clients with their accommodation needs including Pacific Brands, Country Road, The Good Guys, United Energy, Woolworths and GE.

Rob also leads a team of more than 30 professionals in the Colliers International Melbourne East business, offering a full range of specialist services including sales, leasing, valuations and property management in the office, industrial, retail and residential sectors.

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