Commercial & Industrial Property News Update

Australia - Office Leasing Hits Lowest Level In Melbourne

October 17, 2012

Melbourne is experiencing its lowest level of office leasing activity in a decade, but continued demand is expected to keep the market afloat.

The office leasing market in Melbourne has hit its lowest level of activity in 10 years. However, with continued demand from legal and financial firms, the current 6.2% vacancy rate is not likely to blow out.

This was noted by property research firm Savills, which said that accountants KPMG and law firm Corrs Chambers Westgarth, among others, are seeking office space of about 150,000 sq m in total.

Over the 12 months to September 2012, 190,487 sq m of space were leased in central Melbourne (which includes the CBD, St Kilda Road, Southbank and Docklands). Only leases greater than 1,000 sq m were counted.

This is down 56% on the previous corresponding 12-month period and down on the five-year average of 438,495 square metres.

The high-end premium office market was the most adversely affected, recording negative net absorption of 12,336 sq m for the year. The Grade A submarket, however, managed a positive net absorption of 7,760 sq m, while secondary grade office stock enjoyed positive net absorption of 8,619 sq m.

Overall, the Melbourne office market recorded positive net absorption of 4,043 sq m. Net absorption refers to the amount of space occupied at the end of a period of time minus the amount occupied at the beginning of that period, taking into consideration space vacated during the period.

Data gathered by Savills showed that Grade A office stock had the lowest vacancy rate at 4.7%, down from 5% a year ago. Meanwhile, the vacancy rate for top-end premium grade stock rose from 5.4% to 7.7%.

Savills said that despite the drop in leasing activity, the was still significant tenancy requirements in the market. Head of office leasing for Victoria, Nicholas Farley, said that it was premature to talk about a blowout in the vacancy rate or to expect a significant fall in office rents. This was because enquiry levels are trending upwards.

"Public requirement for CBD office space is currently well above 150,000 sq m, including Corrs Chambers Westgarth (9,000 sq m), KPMG (25,000 to 30,000 sq m), and several other well-known tenants in the market for circa 6,000-square-metre requirements."

"Add to that the fact that enquiry from the finance and insurance sector is well above its historical average, the property and business sector has its highest enquiry level for 10 years, and while the IT and technology sector has recorded an about average requirement, in terms of what its requirements have been over the last decade, it is now trending up."

Tags: Commercial real estate, Business space, Income properties

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