Office Deals Double in Melbourne CBD Market

Melbourne’s office market is back in business, according to JLL’s preliminary results for this quarter showing almost $1 billion in sales, double the previous quarter’s transactions.

JLL recorded $985.9 million for the second quarter of 2021, almost double the previous quarter’s $412.5 million, in a sign the market had become buoyant.

The research shows this has been the strongest quarter for the Victorian commercial office sector transactions since 2019, before the Covid-19 pandemic sent the state into a series of lockdowns.

JLL senior director of capital markets Josh Rutman said they had appointed three new commercial sales agents to meet demand in the sector.

“The Victorian commercial property market has become increasingly buoyant as demonstrated by recent transaction volumes,” he said.

Despite strong investor sentiment in Victoria’s commercial sector, research from Cushman & Wakefield indicates CBD office rents are at their lowest ebb, but the decline has started to slow.

The Cushman & Wakefield’s Office MarketBeat for the second quarter shows that Melbourne’s CBD prime net effective rents had declined marginally to $382 per sq m, a year-on-year decrease of 11.6 per cent.

Average net incentives also continued to move upward, from 39 per cent to 41 per cent, the slowest growth rate since 2019, and placing downward pressure on net effective rents.

Prime net effective rent

^Source: Cushman & Wakefield

Cushman & Wakefield head of research John Sears said incentives in the Sydney and Melbourne CBD office markets were “starting to settle”.

“While the pandemic is currently causing a temporary disruption in the gradual return of workers to the CBD, we continue to see healthy levels of leasing activity across the Eastern seaboard CBD and metro markets,” Sears said.

“We are seeing record business conditions, falling unemployment and rising investment intentions… [if] this cyclical upswing continues, we expect to see an overall increase in office demand in 2021.”

Southbank recorded a 9.3 per cent year-on-year decrease to $362 per sq m, while St Kilda Road dropped 14 per cent during the same period to $284 per square metre.

But Sears said research indicated a growing trend for workers heading back to the office.

Transport and pedestrian count data showed Canberra was the most advanced in its return to the office with usage in April of about 85 per cent of pre-Covid-19 levels, while Sydney, Melbourne and Brisbane CBDs were between 50 and 60 per cent of the 2019 average usage.

“Usage dipped in April due to the Easter break and a three-day lockdown in Brisbane, and the current Sydney restrictions will certainly have an impact, but otherwise there is a clear trend towards people returning to the CBD,” Sears said.