11.90%
45,560sqm
Vacancy rate as at Jan 22
Net absorption in 6 months to Jan 22
Active demand from SME’s
Melbourne CBD Office Market Report. Q1. 2022: Improving demand reduces vacancy rate and incentives moderate.
2022
Q1
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Supply With more than five million square metres of office space, Melbourne’s CBD is the second largest CBD office market in Australia behind Sydney’s CBD. While the population of Melbourne is forecast to overtake
concentrated on the Western and Docklands precincts which
Sydney by 2026, the Melbourne CBD office market is projected
collectively accounted for 90% of the total space completed
to be Australia’s largest by 2027.
in the CBD in 2021. The vast majority of space added to the
Underpinned by Melbourne’s recent construction cycle, in terms of quality of office accommodation, A-grade office space accounts for just under half of the Melbourne’s CBD office space with B-grade and Premium quality office space each accounting for 21% of the total office space across the CBD.
Melbourne CBD office market in 2021 was of A-grade quality (182,866sqm) with the remainder delivered in B-grade assets. Withdrawals over the year totalled 62,083 square metres of which 3,300 square metres being permanently withdrawn and the remaining 58,783 square metres temporarily withdrawn for refurbishment, highlighted by ISPT’s full refurbishment of 500
For a second consecutive year, new office supply delivered to
Bourke Street. Looking ahead a further 40,000 square metres
the Melbourne CBD market was above the long-term average
is forecast to be permanently withdrawn over the next three
with 198,551 square metres completed in 2021, following the
years.
record high of 351,929 square metres added to the Melbourne CBD in 2020. New supply delivered to the Melbourne CBD was
Melbourne CBD Office Supply by Grade
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Melbourne CBD Office - Market Report | Q1. May 2022
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Melbourne CBD Office Net Supply
New developments accounted for the majority of stock
Pre-commitment levels in the new development under
additions in 2021, led by NAB’s new office at 405 Bourke
construction remains moderate with 45% of the 150,100
Street (66,000sqm) and Myer’s new headquarters at
square metres that is due for completion over the next three
1000 LaTrobe Street (39,500sqm). In addition to the new
years across the new developments currently pre-committed.
developments, the extensive refurbishments of 100 Queen
Beyond the projects currently under construction, while there
Street and 750 Collins Street were also completed.
are a number of projects with planning approvals in place, the current pre-commitment levels and elevated vacancy rate will
Looking ahead, the level of new supply is projected to ease,
make securing an anchor pre-commitment challenging and is
with 269,991 square metres scheduled to be completed by
likely to limit significant development in the medium term.
the end of 2024, with the majority coming online in 2023.
Major Supply Projects Under Construction Address
Type
Major Tenant Commitments
NLA
Completion
637 Flinders Street
Full Refurbishment
n/a
25,716sqm
2022 Q3
140 Lonsdale Street
New Development
Australian Federal Police
22,000sqm
2022 Q3
693 Collins Street
New Development
Medibank
70,000sqm
2023 Q1
130 Little Collins Street
New Development
9,600sqm
2023 Q2
555 Collins Street
New Development
Amazon, Aware Super
48,500sqm
2023 Q2
500 Bourke Street
Full Refurbishment
n/a
46,125sqm
2023 Q3
Source: Property Council of Australia / Fitzroys
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Melbourne CBD Office - Market Report | Q1. May 2022
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Demand Victoria’s strengthening economy coupled with employment growth resulted in improving levels of tenant demand over the past six months. After Victorian employment levels contracted over 2020, the
January 2022, vacancy rose in the Melbourne CBD, impacted
labour force in the state gathered momentum through 2021. In
by new additions. The Melbourne CBD office vacancy rate
the year to March 2022, Victorian employment rose by 64,400
rose to 11.9% as at January 2022 – its highest level since July
equating to an employment growth of 1.9%.
1999, up from 10.4% in July 2021. Notwithstanding the rise in
The growth of employment in Victoria was driven by the traditional white collar employment sectors of professional services and finance. In addition to the strong gains of the key
vacancy, the Melbourne CBD office market has the third lowest vacancy amongst all of Australia’s major CBD office markets only trailing behind Canberra at 6.2% and Sydney at 9.3%.
white collar employment sectors, the health and education
The sharp improvement in employment and job ads resulted
sectors recorded solid growth over the year.
in net absorption in the six months to January 2022 increasing
As a result of Victoria’s employment gains, the state’s unemployment rate has fallen to 4.0% as at March 2022, which is nearing 50-year lows. Looking further ahead, while job advertisements continued to improve, which have risen to 20-year highs as at March 2022 with job ads now up 29% over the year.
to 45,560 square metres, up from negative 96,635 square metres in the previous six months. The level of Melbourne’s CBD net absorption over the past six months was the highest of all Australian office markets apart from the Perth CBD. All grades of Melbourne CBD office space recorded positive net absorption in the six months to January 2022 except for B-grade stock.
Despite recording positive net absorption in the six months to
Melbourne CBD Net Absorption & Total Vacancy
4 Melbourne CBD Office - Market Report | Q1. May 2022
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Akin to the other CBD office markets of Australia, Melbourne’s
continued to rise, increasing from 2.4% in July 2021 to 2.5%
CBD vacancy rate is also now above its 10-year average. In
as at January 2022 – its highest level since 1995. In terms
terms of quality grades, A-grade vacancy rose to 14.2%, its
of the quantum of sub-lease space, the current level of
highest rate since 1995 with B-grade vacancy rising to 13.7%,
127,708 square metres is the highest on record as businesses
an eight-year high. Interestingly, Premium grade vacancy fell
reconsidered their office space needs with major occupiers in
to 7.2%. Over the six months to January 2022, C-grade and
particular offering space. Collectively, Premium and A-grade
D-grade vacancy rates also recorded declines.
office space account for 90% of total sub-lease vacancy across
Sublease vacancy in the Melbourne CBD office market
the Melbourne CBD office market as at January 2022.
Melbourne CBD Vacancy by Grade
By precinct, while the majority rose in the six months to January 2022, all precincts with the exception of the Spencer precinct are now above their 10-year averages. The Civic precinct rose to 12.3%, its highest level since January 2000, impacted by tenant relocations and new supply. The Docklands precinct also increased, rising to 13.1% - its highest level on record.
above its 10-year average for the first time since July 2015. Looking forward, tenant demand is expected to continue to gather momentum through 2022, led by smaller occupiers. The lower level of development activity coupled with stronger leasing activity is expected to underpin the recovery of the leasing market. The Melbourne CBD office vacancy rate is projected to peak in mid-2022 before trending lower in coming
Within the Melbourne CBD strata office market, total vacancy
years. However, vacancy likely to remain above 10-year average
increased to 4.7% as at January 2022, having risen from 3.4% a
for several years, given the significant volume of backfill and
year earlier. The strata office vacancy rate has now increased
sublease space that is currently being marketed.
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Melbourne CBD Office - Market Report | Q1. May 2022
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Melbourne CBD Vacancy by Grade
Prime face rents continued to show resilience; however,
Incentives remain at 30-year highs for both prime and
incentives have continued to increase, albeit at a slower rate.
secondary offices given the elevated sub-lease vacancy and
As a result, prime effective rents decreased for a second
uncommitted pipeline of new supply coupled with uncertain
consecutive year.
working models establishing for businesses resulting in a
Face rents in the secondary market have also remained stable
reduction of onsite staff.
since the onset of the pandemic with a wide range of incentive
Looking ahead, face rents are expected to increase over 2022,
levels being offered by landlords reflecting the location and
with incentives beginning to moderate, which will likely result
quality of space.
in effective rental growth recovering over the year.
Recent Leasing Transactions Address
Type
Tenant NLA
NLA
555 Collins Street
Pre-lease
Aware Super
8,000sqm
80 Collins Street
Existing
Moelis
1,300sqm
567 Collins Street
Sub-lease
WSP
8,000sqm
100 Queen Street
Existing
Judo Bank
3,000sqm
120 Collins Street
Existing
Franklin Templeton
1,500sqm
600 Bourke Street
Existing
Findex
1,500sqm
Source: Fitzroys
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Melbourne CBD Office - Market Report | Q1. May 2022
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Sales Activity Despite Melbourne’s significant lockdown periods, demand to purchase Melbourne office assets was strong with annual CBD office sales volume levels over 2021 totalling $2.3 billion. The underlying weight of funds and low interest rates kept activity
CBD office assets, secondary yields also remain well below
levels robust despite the uncertainty surrounding all office assets.
historical averages with Melbourne remaining a highly sought-
Foreign investors continued to be attracted to the Melbourne CBD office market, accounting for 65% of total office sales volume over 2021, albeit domestic purchasers increased
after destination for capital from both local and international investors. Average secondary yields range between 4.75% and 5.50%.
their share from the previous year. Offshore purchasers were
Given the recent extended period of limited investment
dominated by those from South Korea, Germany, Singapore and
opportunities, investor demand for office assets is likely to
the United States.
remain strong across the Melbourne CBD, with confidence
Despite the elevated vacancy levels, as at March 2022, average prime office yields remained stable and range between 4.00% and 5.00%. Average prime yields now stand almost 200
improving considering the increasing occupancy levels of CBDlocated assets along with long-term outlook for rental growth of the Melbourne CBD office market.
basis points lower than the long-term average. Similar to prime
Melbourne CBD Office Sales Volume
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Melbourne CBD Office - Market Report | Q1. May 2022
MELBOURNE CBD OFFICE - MARKET REPORT, Q1
Office Leasing Team Fitzroys clients include institutional, corporate and private owners within the CBD, Inner Fringe and Suburban markets. Contact us today to discover how we can secure tenants for your office property.
Phillip Cullity
Stephen Land
Hamish Dennis
DIRECTOR
ASSOCIATE
AGENCY EXECUTIVE
03 9275 7788 0419 322 825 cullityp@fitzroys.com.au
03 9275 7765 0400 950 290 lands@fitzroys.com.au
03 9275 7718 0406 500 232 dennish@fitzroys.com.au
Office Leasing Services Clear leasing strategy & advice Leasing of new office projects, existing developments, creative and heritage space, mixed use developments and specialist property. Pre-commitment & pre-development advice Project marketing Expert negotiation Regular client communication and progress reports
For more information on how Fitzroys Office Leasing services can help your organisation, Licensed Estate Agents Auctioneers please contact Phillip Cullity on 0419 322 825 or cullityp@fitzroys.com.au Asset Managers
Consultants and Valuers
Disclaimer: The information, views, projections or analysis published in this report including text, graphics, and all images are for general use only and not to be relied upon for financial or related investment in any way. No responsibility or liability whatsoever can be accepted by Fitzroys Pty Ltd for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. Reproduction of any part or whole of this report must seek prior express written approval of Fitzroys Pty Ltd.
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Melbourne CBD Office - Market Report | Q1. May 2022
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