Melbourne Office Market Experiencing Positive Activity

JLL Research has released 3Q16 statistics on national office markets, which reveal that the Melbourne CBD recorded 67,500 square metres of positive net absorption in 3Q16, and 159,100 square metres over the 12 months before September 2016.

However, vacancy moved marginally higher to 8.9% in 3Q16 as backfill space from relocation to new development was made available.

JLL Head of Strategic Research, Australia Andrew Ballantyne said the demand recovery in Melbourne is broadening with positive enquiry and activity from professional services firms and the education sector, while centralisation to the CBD remains a relevant theme.

"However, we have started to record more activity from the public sector and a significant proportion of net absorption in Q3 was related to the expansion of public sector tenants," he said.

A sharp reduction in sub-lease availability has facilitated an environment where effective rents can recover in the Melbourne CBD.

Sub-lease availability contracted from 1.9% of total stock at the end of 2015 to 0.9% of total stock in Q3. Prime gross effective rents increased by 4.2% over the quarter and by 6.4% over the 12 months to 3Q16.

JLL Head of Office Leasing, Australia, Tim O’Connor said the Melbourne CBD has joined Sydney in the early upturn phase of the rental cycle.

"The options for tenants are starting to contract and the next wave of completions will not occur until late 2018, creating an environment for above trend effective rental growth in the Melbourne CBD.”

In national terms, the CBD office market vacancy rate was reported at 12.0% in 3Q16 – a 0.6 percentage point reduction over 2016 (from 12.6%). However, the CBD office market vacancy spread remains wide with Sydney’s vacancy at a below average 7.2%, while Perth remains elevated at 24.7%.

“The Australian economy has proven to be very resilient recording 25 successive years of positive economic growth in Q2, while non-mining sectors are benefitting from accommodative monetary policy and a lower AUD," Mr Ballantyne said.

"Furthermore, business surveys have shown that corporate Australia is more confident about the medium-term outlook and is seeking to increase headcount.”

The strength of the service-sector economy is reflected in white collar employment growth and positive net absorption in Sydney and Melbourne.