Melbourne, 10 November 2015- Melbourne has seen the highest level of net absorption amongst CBD markets in 2015, with the highest annual level in five years.
Tenant migration from the suburban markets and growth in white collar employment has boosted net absorption to 98,828sqm over the year ending June 2015. Tenants previously located in the fringe have been attracted by affordable lease terms in central locations with better access to amenities.
As a result, CBD vacancy was estimated at 8.1%, down 100bps from six months prior. 170,000sqm of new office supply in the next two years however will place upward pressure on vacancy, with levels expected to peak in the second half of 2016 at approximately 9%.
The supply pipeline in the Melbourne CBD is due to see 95,600sqm of new stock and 56,400sqm of refurbished stock completed in 2015, including 29,000sqm at 313 Spencer Street, the new home of Victoria Police. Beyond 2015, 727 Collins Street is expected to bring 70,000sqm to the market in 2016.
CBRE’s Andrew Tracey, Regional Director, Office Services, said that prime net face rents increased slightly in the CBD over the third quarter to average $494sqm, while secondary rents remained stable. Both prime and secondary incentives remain at consistent levels, but have reached their peak and are likely to decline over the next 6-12 months, leading to growth in real effective rents in the medium term.
“It is getting a lot tighter in the better quality assets and the next round of new CBD developments will be at benchmark rentals,” Mr Tracey said.
In the investment market, significant transactions reported over the quarter include the sale of 120 Collins Street as part of the Investa portfolio acquisition by China Investment Corp for $345 million and LaSalle Investment’s purchase of 222 Exhibition Street from AMP Capital for $222.5 million.
Suburban assets were in high demand over the past year, with yields compressing around 70bps y-o-y. The largest transactions recorded in Q3 were the sale of 913 Whitehorse Road, Box Hill, by Cromwell to FG Asset Management for $156m and the sale of 530 Springvale Road, Forest Hill, by Marks Henderson for $80 million.
Mark Coster, Senior Managing Director, Victoria, said investment volume across Melbourne over the first three quarters of 2015 was already the second highest annual aggregate on record, at $3.5 billion, and the third successive year to top $3 billion.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.